How Do Pawn Shop Loans Work?

How Do Pawn Shop Loans Work?

How Do Pawn Shop Loans Work?
Carl White

Most of us have seen pawnshops in movies. These places are considered quite shady. However, if you have not visited a pawn shop, you can possibly miss out on some great bargains. A pawn shop can be viewed as a flea market and dozens of garage sales; all rolled into one. Pawnshops are an integral part of many communities because they provide a fast and easy way to borrow small amounts of cash.

Three things take place at any pawnshop on any given day.

  • People borrow cash by offering something they own as collateral
  • People buying used and new merchandise
  • People selling used merchandise

In this article, we will learn and talk about basic things like what is a pawn shop, their working, the rates of interest, etc.

What Is a Pawn Shop – The Basics

Before learning how do pawnshop loans work, we first need to know the pawnshop 101 basics. A pawnshop is generally a store that offers money, mostly a fraction of the value, for a wide range of items. For many years now, these shops have been in existence, the oldest being recorded in ancient Greece; the rules of pawning were different then. In older pawnshops, the borrower had to pawn an item and has a month or two to repay the owed amount. Usually, there was also an additional fee or charge needed to get the item back.

As for modern pawnshops, they cannot sell the item before completing the date that both parties have agreed to. If another person wants to buy the item, the pawnbrokers need to contact the customer who has pawned the item and ask him/her if they can sell it. They may even offer a bit more money to the pawning party if the demand for the item is high.

On the other hand, you can also start pawning items to pawnbrokers on consignment. This means that the broker will offer you money only if the item is sold. In these cases, the profits may be split between the owner of the item and the pawnbroker.

These days, pawnshops have to follow many pawn shop rules and regulations; these rules and regulations will depend on the areas and nationality. For instance, pawnshops in America have to follow the National Pawn Association (NPA) rules, which helps local businesses stay updated with regulatory requirements and various other business support.

How Do Pawn Shops Determine Value: Methods Used

What do I need to pawn something? Determining the value of the items is the first step for a pawnbroker to pawn loans; hence, you need to understand how do pawn shops assess value. Pawnbrokers need to consider a wide range of factors when it comes to determining the values. The value will be determined based on the condition of the item and the seller’s circumstances.

In general merchandise, you can pawn something like media products (video game discs, DVDs, etc.), sporting goods, musical instruments, watches, specialized tools, antiques, consumer electronics, etc. While each item has a unique consideration, it will be based on its current value in the market.

The pawnbroker will assess the item based on its conditions, accessories, and packaging for the base amount. They will also consider ongoing economic predictions and trends.

If you want to get loans at pawn shops for jewelry and gold, the broker will likely get in touch with an expert. These experts will base the value of the gold and jewelry based on the carat weight and the cut. They will also be aware of the ‘melt price’ of the gold and silver products. While there is no minimum value of the items, most loans from pawn shops use a percentage for determining the value.

Understanding How Much Interest Do Pawn Shops Charge

Before getting a loan from a pawn shop, it is crucial to understand the pawnshop interest rates. Understanding the interest rates for the pawnshop payday loans is not easy since the fees vary from one place to another and are not straightforward.

Since the term ‘interest rate’ can be confusing, we will change it into ‘finance charge.’ As mentioned above, all pawnshops in the US are regulated. It means that the finance charge is mostly between 5% and 25% every month. However, the interest rate will also depend on the state; for instance, the interest rate is 3% in Indiana; however, pawnshops can charge an additional 20% for monthly services. It brings the total to 23% per month.

Hence, it is not easy to understand how much interest do pawn shops charge. According to experts, the pawnshop loans industry is rapidly changing and these interest rates are being reduced by most brokers, especially the larger ones. If you want to learn how do pawn-shop loans work, you can check out the website of pawnbroker; you will likely find all interest and value-related information on the website.

Pros And Cons of Pawnshop Loans

Now that you understand how pawn shops work, let us dive into some pros and cons.


Some advantages of pawnshop loans include:

Instant Credit

One of the biggest advantages of pawnshops is that you can get instant credit. This means that you do not have to wait for too long to get your funds. The maximum time that it takes to get pawnshop loans is just a couple of minutes. All you need to do is pledge an item and wait for the broker to verify the value.

Minimum Credit Checks

For traditional loans like car title loans, you need to provide credit checks before approving the loan. In the case of pawnshop loans, you do not have to provide any credit checks. Most of these brokers will not get a background check done, particularly regarding credit scores.

Provide Possessions for Backup

The products you hand away for pawn loans will not be sold unless you cannot provide back the loan amount or have not agreed to it. Basically, you are providing the item as a backup for its monetary value. Additionally, there is also a written agreement that even if the item were to be sold, it would be done after an agreed number of days if there is any delay in repaying the loan.


Sadly, some disadvantages of pawnshop loans include:

Very Expensive

Like other types of loans like cash advance loans, you will have to pay interest on the pawn loans you take. Similar to payday loans, the rate of interest is very high for a pawnshop loan as well.

Lack of Contract

Most pawnshops do not provide any specific contracts that need to be signed by both parties when any item is being pledged. This is quite dangerous because the broker can now change the agreement’s details by reducing the repayment period or increasing the interest rate.

The Loan Is Only a Percentage of The Value of The Pledged Item

In most cases, the pawnshop loans provided to you are only a small percentage of the total value of the item you are pledging. It’s because these shops need to add up their own profit margin before they can sell the item if the borrower is unable to repay the loan. It means that the borrowers will only get a fraction of the original value of the item.

Alternatives to Pawnshop Loans

Some alternatives to pawnshop loans include the following.

Personal Loans

With the help of any type of personal loan, you can easily borrow money without providing collateral. All you need to do is provide proof of your income; additionally, the lenders may also review your credit history. If everything checks out, you will be handed over the loan with decent interest rates.

Payroll Advance

If you only require a small amount of cash, you can simply ask your employer to provide you with a payroll advance. It means you are asking your boss to advance a portion of your upcoming paycheck. It’s a great option because you do not have to pay fees and interest; in short, you are simply borrowing money from yourself.

Credit Cards

If you use your credit cards, you can instantly borrow money by making the payment via your credit card or taking out a cash advance. On average, the APR on a credit card can be roughly 16-20%.

Selling Your Products

Selling products that you do not require may be a great way to raise funds without paying back anything. Do not take the sellable products to a pawnshop for loans; this way, you will avoid paying unwanted financing charges and interest rates.

The Bottom Line

Overall, pawnshops and these loans are a decent way to raising money if you are willing to provide collateral. Such shops have been a part of the international culture for many years now. They are checked and regulated by regulatory bodies.

Carl White
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Carl White is a father of three wonderful kids and spends leisure time cherishing his favorite hobbies like camping and boating. He is also passionate about traveling across different countries on Harley Davidson and conceives intellectual thoughts from top world leaders. White is an expert author and financial expert catering his valuable services to our website. He is also the Founder and Chief Strategist at The Mortgage Marketing Animals. Carl also hosts the #1 Podcast for topmost loan officers in America.