The Pros and Cons of Pawn Shop Cash Advances

Pawn shops are a common sight in many American towns and cities. But what do you actually know about pawn shops? Other than watching a few episodes of Pawn Stars, do you know how pawn shops actually work? If you were in a financial bind, would you turn to one for a quick "cash advance?"

If you don’t know the answers to those questions, you’ve come to the right place. We’ll explain how pawn shops and their cash advance products work, and break down the pros and cons of a pawn shop loan compared to similar types of other financial products. It won’t be as fun as Pawn Stars, but it will be more informative.

How do pawn shops work?

It helps to think of a pawn shop the way you would any other lender. They lend you an amount of money that you must repay with interest. The loans they issue are secured, which means they use a valuable piece of property as collateral.

One of the main differences between a pawn shop and a regular lender is that you bring your collateral to them and they physically hold it until the loan is repaid. If you can’t repay them, they simply put the item up for sale in their shop. With an auto or mortgage loan, you can maintain possession of the house or car that is securing the loan. However, that is not the case with a pawn shop loan.

Generally, the collateral for a pawn shop cash advance is not something massive like a car or a house; it’s small, like a piece of jewelry, a TV, or a vintage comic book. And while some small items can be valuable, they usually are not worth as much as a car or a house. As such, the amount you borrow from a pawn shop is typically less than the amount you borrow with traditional personal loans.

What are the terms for a pawn shop cash advance?

While the amount you can borrow from a pawn shop will depend on the item you use as collateral, it is common for the broker to only offer a fraction of the item's full value. According to the National Pawnbrokers Association, the average pawn shop loan is only $150.

Pawn shop cash advances are designed to be short-term loans. And while the laws that govern pawn shops vary from state to state, the standard pawn shop loan term is around one month. That means you have one month to pay back your loan, including interest, before the pawn shop can put your item up for sale.

Short terms can make it difficult for people to repay their cash advance on time. Additionally, these loans aren’t designed to be paid off in series of payments like an installment loan. Instead, they are meant to be paid back all at once, similar to short-term payday loans. That lump-sum repayment can also make paying back your loan more difficult.

Then there are the interest rates, which are much higher than the rates for standard loans, despite the pawn shop brokers literally holding onto the borrower’s collateral in the event they don’t repay. While interest rates for pawn shop loans vary, pawn shops often charge anywhere from 12% to 240% interest on their products, depending on state and local laws. Be aware that some shops may charge additional fees.

Risks of pawning personal belongings

Even if you have to pay relatively high interest rates as part of the trade, it is not guaranteed you will be able to get a loan or sale price large enough to cover your needs.

Logan Allec, CPA, owner of personal finance website Money Done Right, warns against this.

“The stereotypes for pawn shops exist for a reason: You will get very low value on your items if you go to a pawn shop,” he says. “In fact, you can expect to be offered no more than $20 for a $100 item. While this could seem appealing in a financial emergency, the amount of money you’ll lose is simply not worth it.”

What are the pros of a pawn shop cash advance?

When it comes to securing some quick cash for emergency expenses, pawn shop cash advances have a few real advantages over other small-dollar loans.

• No credit checks: While there are many types of no credit check loan lenders that don't care about your credit score, those loans could harm your score if you don’t pay them back. Pawn shop cash advances, however, do not run that risk. If the loan isn’t paid back, the pawn shop won’t send you to a debt collector who then reports your account to the credit bureaus. Instead, they’ll just sell your collateral.
• Relatively lower interest rates than payday and title loans: Even though pawn shop loans have very high interest rates, they are often much cheaper relative to payday and title loans, which can have APRs that average 400% or higher. If you have bad credit or no credit, these loans tend to be a cheaper alternative to predatory payday lending (for more on bad credit loans, be sure to read the OppU Guide to Bad Credit Loans here).
• Quick cash: Most no credit check lenders and cash advance shops will get you your money quickly, and pawn shops are no exception. You will almost always get your money faster through a pawn shop than you will with an online loan. If you need to come up with a couple hundred dollars, and you only have a matter of hours, then heading on down to your local pawn shop is an easy way to get the cash you need—assuming, of course, that you have an item valuable enough to secure the funds.

While pawn shop loans aren’t going to secure you a lot of money and could lead to you paying more than you originally borrowed in fees and interest, they can be a handy way to get cash in a hurry and may not pose nearly as much of a financial threat as predatory payday loans.

What are the cons of a pawn shop cash advance?

While pawn shop loans might have a leg up on other types of predatory loans, it doesn’t mean that they’re all sunshine and puppy dogs. They still pose serious financial risks, and in many instances can be considered predatory loans themselves.

• Revving up the debt cycle: With short-term loans like these, there is a strong likelihood that you won’t be able to pay the loan back on time. In some cases, pawn shops may let you extend your due date in return for additional fees or interest. This can lead to a predatory cycle of debt, wherein you constantly throw more money at your cash advance loan without ever getting closer to paying off the loan itself.
• The interest rates are very high: The point of securing a loan with collateral is that it makes lending money less risky for the lender. If the borrower doesn’t pay them back, the collateral ensures it won’t be a total loss. Less risk for the lender usually translates to lower rates for the borrower. It’s a win-win. But a pawn shop cash advance isn’t like that. Despite the pawn shop risking very little in issuing the loan, many of them charge APRs between 12 and 240%. These are only wins for lenders, as they win either way.
• You can’t borrow that much: As mentioned above, the amount you are able to borrow with a pawn shop cash advance will depend on the value of the item that you pawn. But the fact remains that you’ll only receive a fraction of what that item is really worth. With an average loan size of only $150, pawn shop cash advances don’t make a great solution to emergency expenses.
• You risk losing your stuff: While pawn shop loans don’t hold a candle to title loans, which put you at risk of using your car, your valuables are at risk when you pawn an item for some extra cash. If it’s something you don’t care about seeing again, then you may not be too worried. But if it’s a valuable family heirloom or a pricey piece of electronics, then you run the real risk of never seeing it again, especially with how difficult these loans can be to repay.

Pawn shop alternatives

Instead of immediately taking your valuables to a pawn shop, you should do some research and see if you could get a better deal selling them on Craigslist, Ebay, Facebook Marketplace or other similar sales apps, or even to a friend or family member.

"It may also be worth asking for help before you resort to giving up your treasured possessions," Allec says. Crowdfunding sites like GoFundMe allow for people to fundraise for financial emergencies and other unexpected circumstances by sharing their story online through the platform.

“These campaigns are often put up by individuals who need funds and quickly,” he says. “If you are in need of funds and believe your personal story could lead to donations from others, then a GoFundMe page could be a worthwhile strategy to explore.”

Think before you act

It can be easy to lose your head in an emergency. Taking a moment to evaluate your situation and consider all options may result in a better choice than your neighborhood pawn shop. Additionally, you could end up with a pawn shop that is less than scrupulous in their practices. As an example, Rebecca Beach, a finance blogger at Mom Beach, shares her own experience:

“When I was in college, I was extremely poor. I could not afford much of anything since all the money I made from my part-time job went to books and low-cost food.

“At the local pawn shop, I regularly pawned my flute and other valuables in order to get money until payday in order to eat. I was in the marching band, so I needed my flute on the weekends. I ran into some trouble after I had pawned my flute for the fifth time. My boss at the furniture repair shop could not afford to make payroll that Friday so I had no money to get my flute on time.

“The pawn shop would not work with me and I ended up losing my flute. I had to miss marching band practice that weekend since I had no instrument. A risk with pawn shops is losing the item that you had pawned if you can't pay on time. Never pawn valuables like family heirlooms in the hopes of getting them back after payday.

"There is also the chance your item may not be there, or in the same condition, when you go to retrieve it," Beach says.

“I pawned my Playstation 3 and the pawn shop accidentally misplaced my working console with one that didn't work. I received one that didn't work when I came back on payday.”

The bottom line

Pawn shop loans might be a safer option than a predatory payday loan, but they still come with plenty of downsides. If you need quick cash to pay for unexpected or emergency expenses, odds are that a pawn shop loan may not cut it.

Logan Allec is a CPA, personal finance expert, and owner of the website Money Done Right. After spending his 20s grinding it out in the corporate world and paying off more than $35,000 in student loans, he dropped everything and launched Money Done Right in 2017. His mission is to help everybody — from college students to retirees — make, save, and invest more money. He currently resides in the Los Angeles area with his wife Caroline and son Hunter.

Becky Beach is a money saving expert and finance blogger at MomBeach.com. She is married with a son named Bryan, and enjoys shopping at flea markets to find the best deals.