Pawnshop loans, also known as pawn loans, are a type of secured loan where you use a valuable item as collateral to borrow money. Here's how pawnshop loans work. You bring an item, such as jewelry, musical instruments, or power tools, to a pawnshop. The pawn broker assesses the resale value of the item and offers you a loan based on a percentage of that value.

Features

• No Credit Checks. Unlike a traditional loan or personal loan, a pawn loan does not require a credit check. This means that your credit score and credit scores are not affected by taking out a pawnshop loan. This feature is particularly beneficial for those who may have a bad credit score or no credit history at all.

• Quick Access to Cash. Pawnshop loans offer fast cash. When you bring a valuable item to pawnshops, you can receive cash immediately. This quick cash feature makes pawn loans an ideal solution for urgent financial situations where you need money faster than traditional methods.

• Collateral-Based Lending. A pawn loan is secured by collateral. You provide a high-value item, such as jewelry, musical instruments, or other valuables, to the pawnshop. The pawn brokers will assess the resale value of the item and offer you a principal loan amount based on that value. If you cannot pay off the loan, the pawnshop keeps the pawned item.

• No Impact on Credit Scores. Defaulting on a pawnshop loan does not involve debt collectors or impact your credit score. Since there are no credit bureaus involved in pawnshop loans, your financial situation is not reported, making it a safe option for those looking to avoid negative marks on their credit report.

Pros and Cons

Pros

1. Quick Access to Cash. Pawnshop loans provide a fast way to get a loan. When you bring high-value items to a pawnshop, you can receive cash immediately without the lengthy approval process associated with conventional loans or loans from credit unions.

2. No Credit Checks Required. Unlike conventional loans, pawnshop loans do not require credit checks. This makes them an attractive option for individuals with poor credit scores or those who cannot pre-qualify for other types of loans. Since no credit bureaus are involved, your credit score remains unaffected.

3. Flexible Loan Terms. The loan term for a pawnshop loan is usually short, typically a few months. If you can pay off the loan within the grace period, you can reclaim your pawned item. The National Pawnbrokers Association notes that pawnshop loans work by providing flexibility in repayment without impacting your credit scores.

Cons

1. High Interest Rates and Fees. Pawnshop loans often come with high interest rates and additional fees, such as insurance and storage charges. These interest and fees can add up, making the overall cost of borrowing money through pawnshop loans quite expensive compared to other loan options.

2. Risk of Losing Collateral. If you cannot repay the loan within the agreed loan term, the pawnshop will keep your pawned item. This risk is significant, especially if the item has sentimental value or if its resale value is much higher than the average pawnshop loan amount you received.

3. Limited Loan Amounts. The average amount you can get from a pawnshop loan is typically lower than other loan types like car title loans or personal loans from credit unions. The amount is based on a percentage of the item's resale value, which might not be sufficient if you need to borrow more money for larger financial needs.

How to Apply for a Pawnshop Loan?

1. Choose A Payday Lender. Select a reputable payday lender, whether from online lenders or a physical location, ensuring they comply with state laws and federal regulations.

2. Prepare Required Documents. Gather necessary documents such as a pay stub, social security number, bank account information, and proof of income.

3. Complete The Application. Fill out the payday loan application form with personal details, employment information, and loan amount requested. Submit the application online or in person.

4. Review The Payday Loan Agreement. Carefully review the payday loan agreement, paying close attention to interest rates, fees, repayment terms, and the due date.

5. Receive Loan Proceeds. Once approved, receive the loan proceeds directly into your bank account or prepaid card account, typically on the same business day.

Requirements

According to the U.S. government’s Consumer Financial Protection Bureau (CFPB), to qualify for a loan, most payday lenders only require that borrowers:

1. Age. Applicants must be at least the age of majority, which is 18 in most states, although some states require borrowers to be 19 or 21 years old.

2. Have An Active Checking Account. A valid and active bank account is necessary for the deposit of loan proceeds and for the lender to withdraw repayments.

3. Provide Proof Of Income. Borrowers need to show evidence of regular income, such as pay stubs, to demonstrate their ability to repay the loan.

4. Valid Identification. Borrowers must present valid identification, which typically includes a social security number, to verify their identity.

Ways to Receive the Money

1. Direct Deposit. The most common method is a direct deposit into your bank account. Once your payday loan application is approved, the payday lender will transfer the loan proceeds directly into your active checking account, typically on the same business day.

2. Prepaid Debit Card. Some payday lenders offer the option to load the borrowed amount onto a prepaid card account. This can be convenient for those who prefer not to use their bank account.

3. Cash. In certain cases, especially with in-person payday lenders, you may receive the borrowed amount in cash. However, this is less common than direct deposit or prepaid card options.

4. Check. A few payday lenders might provide a check for the loan amount, which you can then cash or deposit into your bank account.

Payday Loan Rates

The average payday loan rates generally involve fees ranging from $10 to $30 per $100 borrowed, influenced by state regulations and borrowing limits. A typical fee is $15 per $100 borrowed, leading to an annual percentage rate (APR) close to 400% for a two-week loan. For instance, if you borrow $300, you would need to repay around $345 by the next payday. These rates are significantly higher than those for other types of loans, such as personal loans or secured personal loans.

Payday lending is permitted in thirty-seven states, while eleven jurisdictions, including Connecticut, Maryland, and New York, have strict regulations or interest rate caps that limit or effectively prohibit payday lending. Some states like Arkansas and North Carolina have repealed their payday lending statutes, and others like the District of Columbia have completely banned it.

Eighteen states and the District of Columbia have implemented usury rate caps, often at 36% APR, to curb high-cost payday lending. States like Nebraska, Hawaii, Illinois, and New Mexico have recently enacted such caps, reflecting a growing trend towards regulating payday loan rates.

The highest payday loan interest rates are found in states like Texas (662%), Missouri (652%), and Delaware (639%). Conversely, states like Oregon (140%), Maine (228%), and Iowa (247%) have lower rates. Some states, such as Washington and Virginia, have additional regulations to limit the number of payday loans or extend repayment terms to reduce the risk of debt traps.

Pawnshop Loans. Apply Online

FAQs