How Does a Pawnshop Loan Work?

For those with no credit, bad credit or no time to wait, a collateral-based, short-term pawnshop loan can provide a quick and easy way to get emergency cash. Unlike bank and payday loans, a pawnshop loan requires no credit check or application and can be obtained in just minutes. Understanding the key points to obtaining a pawnshop loan will help make an already speedy loan process go that much smoother.

Loan Terms

A pawnshop loan is secured with collateral and can range from a few dollars to a few thousand dollars. To obtain a pawnshop loan, a person need only present an item of value and a picture ID. The due date, or maturity date, of the loan is typically three months from the date the loan was obtained. At the due date, a customer can either repay the full loan amount plus a finance charge and regain possession of the collateral or pay only the finance charge and extend the loan for another 90 days. Most pawnshops will continue to extend loans indefinitely as long as finance charges are paid on the due dates. According to Bankrate.com, you can expect to pay a state-regulated finance charge of no more than 5 to 25 percent per month.

Collateral Requirements

Although the items accepted as collateral for a pawnshop loan may vary per shop, the general rule is that the newer and more popular an item, the higher the loan amount offered. Popular items to pawn are computers, laptops, any type of gold jewelry, wedding bands, wide-screen televisions, musical instruments and equipment, tools, stereo equipment and car stereos, digital cameras and camcorders, and DVDs and DVD players. Items do not need original packaging but must be in working condition. To deter the pawning of stolen merchandise, most states require that items presented for collateral have readable serial numbers.

Advantages

Convenience, flexibility and affordability are just a few of the advantages to obtaining a pawnshop loan over other emergency-type loans. Local pawnshops are usually open seven days per week, offer casual and friendly customer service, and, with good collateral, a loan can be obtained in minutes. Loan terms are flexible, and, along with loan extensions, most pawnshops extend grace periods up to two weeks for late payments. In addition, unlike a high-interest payday or bank loan, pawnshop loans are short term, and the nominal finance charge makes repayment feasible.

Considerations

Since pawnshop loans are secured with collateral, a person should consider the possibility of losing a valued possession if, for some reason, the loan cannot be repaid. To avoid this possibility, borrowers should accept only the loan amount that is needed and not the full amount offered by the pawnshop. A higher loan amount means a higher finance charge and a bigger payoff amount due at the end of three short months to regain collateral.

References

• Bankrate.com: Pawnshop 101 --- What You Need to Know