Many years ago, and perhaps in some smaller cities today, pawn shop loans had that ring about them, a sinister atmosphere you could say, of being loans you would not be taking dead.
If friends or relatives saw you going into one, they would know straight away that you had financial problems. A pawn shop wasn’t a place you would go to do your shopping either.
How things have changed. You can get some crazy bargains going to a pawn shop these days. You are not buying stolen goods, hopefully, because pawn shops need to report to the local police every item and its serial number. This number is matched on the police database to their stolen goods list.
All that aside, think of it this way. A person in need of money has taken something of value to the pawn shop. They have been paid about 25% – 40% of its value. They have not bothered to retrieve the item. The pawn shop then sells it at a marked-up price, but a lot cheaper than new. There’s your bargain.
4 Reasons Why You Should Avoid A Pawn Shop
1. You Get Small Change for Your Goods
You haven’t swung your golf clubs for over 10 years. Just no time. You need cash urgently. So, you take your set of Pings to the pawn shop. They cost you $2000 when you bought them. The broker offers you $500. If your financial position does not improve, you are never going back to the pawn shop to get those clubs.
2. You Pay a Lot to Get Back What you Pawned
When you return to the pawn shop, to get those Pings back is going to cost you the $500 plus interest. The interest rate varies from state to state but the average would be an APR of 36%. That’s 3% per month but just as not all lenders are the same, neither are all pawn shops the same. Look out for additional fees.
3. Your Goods are Lost if Never Retrieved
While the pawn shop might not be as much of a risk as a payday loan or cash advance because defaulting on one of those hits your credit score, you are risking the loss of your property. Getting a loan from a pawn shop is basically a secured loan with your goods as collateral. If you don’t pay back the money you borrowed, then the pawn shop can sell your goods to make up the loss.
The average retrieval rate in many places is as low as 50%. Curiosity gets the better of you and you walk past the pawn shop a few weeks later and see your clubs being advertised for $1200! Not a great feeling.
4. Not all Pawn Shops are Operating Legally
Over the years, the pawnbroker business has been cleaned up a lot. They were always being used by thieves to palm off stolen goods. But new regulations and legislation have stopped nearly all that. However, the way pawn shops charge is a different matter. Higher APR rates can be applied and the wording of contracts with customers can be deceiving. There have been a few instances where pawn shops have been charged for misleading their customers.
What Are The Alternatives?
It’s pretty hard to think clearly when you are confronted by a financial situation that is an emergency. You know you need money, and you need it now. A payday loan or a pawnshop loan is a quick fix. But maybe there is something better out there. Even if you have bad credit you can qualify for an online personal loan or an installment loan.
Why is that type of loan better than a pawnshop loan or a payday loan?
- Well, an installment loan is over a longer term and that means smaller payments, and that means manageable.
- With an installment loan you know the exact amount you have to pay each month and how long you have to pay it off.
- If you have a bad credit record, this loan will do wonders for slowly increasing your score over the term of the loan.
Better Don’t Risk
Don’t risk losing something valuable you cherish just to get hold of some quick cash. Truth is that an online loan can be approved and the funds are in your account within a day.
If you want to sell stuff you don’t need anymore, do it on eBay or through the local sellers group on Facebook. That way you get a better price and there’s nothing to pay back, so no stress.
1. Bobbi Dempsey (2016). Pawnshops: What You Need to Know. Bankrate.Com. Available at https://www.bankrate.com/finance/personal-finance/pawnshop-101-what-you-need-to-know-1.aspx
2. Pros and Cons of a Pawn Shop Loan. Loan.Com. Available at https://www.loan.com/personal-loans/pros-and-cons-of-a-pawn-shop-loan.html
3. Pawnbrokers – How They Work. The Money Advice Service. Available at https://www.moneyadviceservice.org.uk/en/articles/pawnbrokers-how-they-work
4. Aaron Crowe (2012). 5 Ways to Get the Best Price at Pawnshops. Bankrate.Com. Available at https://www.bankrate.com/personal-finance/smart-money/5-ways-to-get-the-best-price-at-pawnshops/
5. (2018). Hot to Get a Pawn Loan for Fast Cash. Finder.Com. Available at https://www.finder.com/pawn-loan-for-fast-cash
6. Tom Sumrak (2014). Pawn Shop Loans and Personal Loans: Understand the Difference. Lendingtree.Com. Available at https://www.lendingtree.com/personal/personal-loans-and-pawn-shop-loans-understand-the-difference/
7. Dr.Don Taylor (2018). Choosing Among a Personal Loan, Payday Loan or Pawnshop. Bankrate.Com. Available at https://www.bankrate.com/loans/personal-loans/personal-loan-payday-loan-or-pawnshop/