Financial Blog - Big Picture Loans

10 Reasons to Avoid Pawn Shop Loans

Written by Sample HubSpot User | May 19, 2021 11:00:00 AM

If you are looking to get some quick cash, you may be tempted to pawn something as collateral. A pawn shop loan does not require a credit check and can be enticing to those with bad credit. However, there are several reasons why you should think twice about this approach.


10 Reasons to Avoid Pawn Shop Loans

  1. Low value for collateral
    When you pawn something, you have a reasonably good idea of what you should get for it. The bad news is that pawnshops are almost always going to offer you less than what you think the item is worth.

 Also, pawn shop employees spend their entire day negotiating with people looking to pawn their items. To put it quite simply, they are pros at this. Pawn shops know that you need the money, and they have no problem lowballing you on your items. 

  1. Poor cost to benefit ratio
    Besides getting a low loan amount for your item, a pawn shop can make things worse if you do not pay your loan back quickly enough. Pawn Shops can add hefty interest rates after a certain amount of days. Pretty soon, you can owe more than what your item is worth.
     
  1. Possible loss of collateral
    The one thing that many people don't consider is the fact that you can lose the item that you put up for collateral. Pawn Shops can legally own an item if you don't pay it back in time. The laws vary by state. However, just about all states allow Pawn Shops to resell your items after a certain amount of time.

  1. Some pawnbrokers skirt the law
    While it is not common, there are some pawnbrokers who will skirt the law and try to squeeze more out of you than what was stated in the agreement. These nefarious pawn brokers realize that some of their customers may not be enthusiastic about pursuing a case - or the fact that they can pursue a claim against a pawn broker - and end up paying more than they expected on their loans.

  1. Collateral may get damaged
    There also exists the possibility that your item may be damaged while in possession of the pawn broker. While your item is usually kept in storage, you are unsure how the item will be handled. For instance, if you pawn a watch or some other sensitive item, the item may end up getting scratched or damaged. At that point, you would have to pursue a case against the pawnbroker. That alone can consume time and money that you may not be able to afford.

  1. You may suddenly need your collateral
    Let us say you pawn your laptop. Suddenly, you realize that you may need that laptop for something work-related. Sorry, you will have to pay back your loan in full - with interest - to get your laptop back.

    Many people will put up items for collateral, thinking that they do not use it or won't need it. However, you never know when you will need an item that you have put up for collateral.

  1. You may be emotionally attached to your collateral
    Chances are, you are going to put something up for collateral that has good monetary value. Often, something with a good monetary value could also have some emotional value that you didn't consider.

    For instance, you may have pawned your old camera, thinking that you have never used it in years. Suddenly, you realize all the memories you have had with that camera on vacation.

  1. Some pawn brokers may try to trick you into thinking your item is not valuable
    As stated before, there may be some pawn brokers who have unethical business practices. There have been cases where pawn brokers have deceived customers about the value of their item. Here are some examples:
      • A pawn broker can convince you that your watch is not in as good a condition as you assumed.
      • A pawn broker can argue that your type of laptop is not in high demand.
      • A pawn broker may argue that your motorcycle will require hundreds of dollars of repair work before he can resell it.
      • A pawn broker may tell you that the diamonds in your jewelry are of a lower grade. 

The bottom line is that it can be hard to tell if a pawn broker is telling you the truth or is merely trying to hustle you.

  1. In a dispute, it will be hard to get back your collateral
    If you happen to have a dispute with a pawn broker, you are at a considerable disadvantage. That is because the pawnbroker owns your property, and you may have to go to court to get it back. Law enforcement will not get involved in contract disputes.

    In many cases, you may want to go to small claims court. However, even that process can consume time and money that you may not have.

  1. There are better alternatives
    Finally, there are much better alternatives to pawning your items.
      • You can get an online loan. These loans have quick applications, often with decision times in minutes, and can typically get an ACH deposit by the next business day. Best of all, you don't have to leave your home.
      • Host a yard sale or sell your unwanted items through an online marketplace.
      • Get a side job, consider anything from waiting tables at a restaurant to online tutoring, teaching English to foreigners online, or even consider renting out a room in your house.
      • Call your creditors and ask for due date extensions, this doesn't solve your cash flow, but it can help ensure you don't fall further behind with more fees and interest.
      • Ask for help from a friend or family member. When cash is tight, you could ask a friend or family member for financial help. If you go this route, you might be able to avoid costly interest charges.

A Better Way to Get Fast Cash

While pawn shops may be a great place to shop for a deal, they may not be the best choice when it comes to getting money in an emergency. Make sure you look for better options to get the cash you need fast.