About 28% of American adults don’t have any emergency savings set aside at all. Even the families that do have some money tucked away often don’t have much of it. So what are you supposed to do when you wind up in a tight spot financially? Pawnshop loans may be the answer you’re looking for. We’ve put together this guide to show you how these loans work and tell you what you need to know before you get one.
Make sure you keep reading below to learn more.
Table of Contents
- How Does a Pawnshop Loan Work?
- The Pros and Cons of Pawnshop Loans: What You Need to Know
- Pro: There’s No Credit Check
- Con: The Repayment Period Is Short
- Pro: You Get Money Right Away
- Con: You Have to Pay Interest
- Pro: You Might Get a Grace Period
- Con: You Might Lose Your Item
- Pro: You Can Get an Extension (In Some Cases)
- Is a Pawnshop Loan the Right Choice for You?
How Does a Pawnshop Loan Work?
Getting a pawnshop loan is a quick and easy process. All you have to do is find a pawn shop in your area and choose an item to hand over as collateral.
Pawnshops will give you money for a variety of items, including things like:
- Jewelry (especially pieces with real diamonds)
- Electronics (such as TVs, computers, phones, etc.)
- And other household items
If you want to pawn your motorcycle for cash, the first thing the pawnshop will do is appraise the bike. They’ll then offer you a loan based on the motorcycle’s value, and if you accept the amount, they’ll have you fill out the proper paperwork. Once you’re done, they’ll give you cash, and you’re free to go spend it.
Over the next few months, you’ll pay the pawnshop the money back (plus interest). After you finish, you can take your collateral back home. If you fail to pay off the loan in the agreed timeframe, the pawnshop will keep your item and resell it to make up for the money they lost.
The Pros and Cons of Pawnshop Loans: What You Need to Know
While a pawnshop loan can get you money fast, you shouldn’t sign anything unless you fully understand the process. We’ve put together a few pros and cons of these types of loans so you know the risks and benefits involved before you hand over your collateral.
Pro: There’s No Credit Check
It can be difficult (and sometimes even impossible) to get a traditional loan if your credit score is below average. But pawnshops don’t check your credit score. No matter what your financial situation looks like, you can walk out of the store with a handful of cash.
This can help you pay the bills during a tight month or cover medical expenses during an emergency.
Con: The Repayment Period Is Short
You won’t have a lot of time to pay off your loan once you get the money. In some cases, you may have to repay the money (and the interest!) within 30 days.
However, the exact repayment period depends on the pawnshop. Some shops may give you three to four months, especially if the collateral had a high value. Make sure you know how much time you have to repay the loan before you walk out of the store so you don’t accidentally lose your item.
Pro: You Get Money Right Away
There’s no application process for this type of loan. Because of that, you don’t have to wait around to be accepted or wait for the money to show up in your account after you’re approved.
You get the cash the second you hand over your collateral.
This means you can spend the money on expenses that can’t wait. It’s also a good way to get some extra money during emergencies.
Con: You Have to Pay Interest
Because you have to pay interest on the loan, you’ll end up spending extra money “rebuying” your collateral in the long run. And the interest rates for most pawnshop loans are often higher than average.
Always talk about the interest before you sign anything. Otherwise, you might get hit with high-interest rates you weren’t expecting.
Pro: You Might Get a Grace Period
Some pawnshops will give you a grace period of about 30 days before you have to start paying anything. While you might want to repay the loan as fast as possible, this extra 30 days can help you recover from any financial or personal hardships and give you a chance to get the right amount of money together.
Con: You Might Lose Your Item
If you can’t pay back the money, you won’t get to keep your collateral. There’s no negotiating or trying again. It belongs to the pawnshop now.
At this point, the only way to get your item back is to rebuy it from the store (probably at a higher price).
Pro: You Can Get an Extension (In Some Cases)
If you aren’t able to repay the loan in time, try talking to the pawnshop before giving up on your item. They may extend the repayment period so that you have another chance to pay back the money.
However, you should always make sure you’ll be able to pay back any money you borrow in advance. This will ensure you get the money you need without losing something precious to you.
Is a Pawnshop Loan the Right Choice for You?
If you’re asking yourself whether pawnshop loans are the right choice for you, there’s no one-size-fits-all answer to this question. However, if you have a bad credit score or if you need money right away, this type of loan might be a good option.
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