Disadvantages of Pawn Shop Loans

Because pawn shops charge high rates and fees, they're not a good way to get money.

By , Attorney UCLA School of Law
Updated 1/11/2023

If you need to raise cash quickly, visiting a pawn shop should be one of the last methods you consider. Read on toearn how pawn shops work and the disadvantages of using one to get money.

How Pawn Shops Work

At a pawn shop, you leave your property and, in return, the pawnbroker typically lends you approximately 25% to 60% of the item's resale value. The most commonly pawned items are jewelry, electronic and photography equipment, musical instruments, and firearms.

The average amount of a pawn shop loan is about $75–$100. You're given a short time to repay the loan, typically a few months, and are charged interest, often at a very high rate.

Cons of Pawn Shop Loans

Here's why using a pawn shop is almost always a bad idea:

Exorbitant Interest and Fees

Although you borrow money for only a few months, paying an average of 10% a month interest means that you're paying an annual interest rate of 120%. Interest rates may vary from 12% to 240% or more, depending on whether state law restricts rates pawn shops can charge.

You might also be charged storage costs and insurance fees.

You Can Lose Your Property

If you default on your loan to a pawn shop, the property you left at the shop to obtain the loan becomes the property of the pawnbroker. You're usually given some time, typically 30 to 60 days, to pay your debt and get your property back. If you don't, the pawnbroker can sell it.

In about a dozen states, you're entitled to the surplus if the sale brings in money in excess of what you owe on the loan, storage fees, and sales costs. But don't count on getting anything.

Getting Financial Help

To learn about safer ways to get control of your finances, see Options If You Can't Pay Your Debts. Consider consulting with a debt-relief lawyer to get more information if you need help deciding which course of action is best.

And, if you have a lot of debts you can't pay, you might also want to consider filing for bankruptcy. In that situation, you'll want to talk to a bankruptcy lawyer.

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