Pawn shops can help you get a little extra money here and there — but at what cost? Discover the pros and cons of pawn shop loans and what to consider instead.

Every once in a while, you may find yourself in need of a few extra bucks — and fast.

Especially in our current COVID-19 climate, some folks will do anything and everything to make ends meet, from taking out a personal loan to selling goods on Craigslist and eBay. In light of these options, pawn shop loans provide somewhat of a middle ground, offering Millennials a chance to make a little extra cash without losing their possessions.

However, while pawn shop loans may be a preferable alternative to predatory payday loans, they too have pros and cons. Read on to learn how pawn shop loans work, reasons to consider them (and reasons to steer clear), alternatives, and more.

How does a pawn shop loan work?

Pawn Shop Loans: Quick Cash For Some, A Pricey Loss For Others - How does a pawn shop loan work?

Pawn shop loans are a type of short-term, secured loan, which means you receive cash in exchange for some form of collateral. What you use as collateral, however, can take a number of forms.

You could exchange electronics or collectibles, or perhaps an instrument or antique; but in the grand scheme of things, what you use as collateral matters little so long as you pay the loan back on time and with interest.

Generally, pawnbrokers offer 25% to 60% of the item’s value, and you’ll have just 30 days, or a few months at the most, to repay the loan and get your item back. These loans are available for relatively small amounts of cash, so it shouldn’t be too difficult to make back the money. In fact, according to the National Pawnbrokers Association (NPA), the average pawn shop loan is just $150.

However, if you struggle to recover the amount you borrowed, you also have a second option: to not pay back the loan. Instead of paying the pawnbroker in interest, the item you used as collateral can act as your payment for the loan.

Are pawn shops a legit place to get a loan?

Movies and TV shows have made pawn shops look shady and suspicious; but as with many things portrayed on the big screen, this is far from reality. In fact, pawn shops, pawnbrokers, and pawn transactions are highly regulated.

On the federal level, pawn shops and transactions are covered by 15 statutes and regulations, which help protect consumers and ensure fair business practices, among other things. Pawn shops are also governed by certain state and local laws, managing details like interest rates, loan durations, and record-keeping. Finally, pawnbrokers are licensed by state and local governments, which evaluate and ensure they remain compliant with relevant laws.

Who should consider a pawn shop loan?

Pawn Shop Loans: Quick Cash For Some, A Pricey Loss For Others - Who should consider a pawn shop loan?

For the vast majority of people who take out a pawn shop loan, all goes as planned. According to the National Pawnbrokers Association (NPA), the average U.S. redemption rate for pawn shop loans is 85%.

With this said, pawn shop loans can be an ideal option for people with a poor or limited financial history, because unlike other lenders, pawnbrokers don’t need to check your credit or income to loan you money. In fact, most pawnbrokers just need a valid government ID. As a result, if you are unable to repay the loan, or choose not to, your credit score will remain unscathed.

Nevertheless, before you take your property to a local pawn shop, it’s always good to make sure they’re an NPA member store first.

Who shouldn’t consider a pawn shop loan?

Whether you pay back your loan or not, the costs associated with pawn shop loans are their biggest drawback.

The interest rates for pawn shop loans are typically around 20% to 25% per month; personal loans, on the other hand, can offer the same rates annually, making pawn shop alternatives a particularly expensive means of finding quick cash. For example, it may cost $25 just to borrow $100 for 30 days. That’s a pretty steep fee as is, but some pawn shops charge additional fees, for storage and such, which can hike up the price even further.

However, as mentioned previously, states determine the interest rates pawn shops can charge, so fees vary nationwide. In Nevada, for instance, pawn shops can charge no more than 13% interest per month, and in Ohio, interest rates are half that, at just 6% per month.

Another issue to consider is many people attempt to use pawn shop loans as more than a short-term solution. Many borrowers become repeat customers, but we only have so much property available to sell. In these cases, borrowers should consider long-term alternatives that do not risk losing belongings and can also boost their credit history for future transactions.

Alternatives to pawn shop loans

Pawn Shop Loans: Quick Cash For Some, A Pricey Loss For Others - Alternatives to pawn shop loans

Pawn shop loans aren’t always bad, but for most people, they should really be a last resort.

Fortunately, there are plenty of other ways to make some extra money that don’t chance losing family heirlooms and prized possessions. Take a look at the list below for three popular alternatives to pawn shop loans.

Payday alternative loans (PALs)

Like pawn shop loans, payday alternative loans (PALs) are both short-term and small-dollar.

You can typically find $200 to $1,000 PALs for terms ranging from one to six months, and the interest rates are capped at 28%. Or, if you need a little more money and a little more time, PALs II (a second type of payday alternative loan introduced by the National Credit Union Administration in 2019) are available for up to $2,000, spanning one-year terms.

PALs I and PALs II are only available for federal credit union members (or those who’ve been a member for at least a month), so if you think you’ll need some extra money in the near future, click here to find a federal credit union near you.

Personal loans

Personal loans are a little more complicated to acquire, but the long-term savings make the extra work worthwhile.

With personal loans, you can get a lot more cash, and you’ll have more time to pay it back too. In addition, you won’t have to put any collateral on the line to get the money. However, lenders will consider your credit history to determine whether or not you qualify.

While it’s certainly plausible to find a more attractive interest rate with a personal loan, the rates do vary considerably. This is one of the many reasons it’s best to start your search on a site like Monevo. Monevo shops over 30 lenders for you, all in one place, in a matter of seconds. It won’t affect your credit score, and you can secure rates between 2.49% - 35.99% APR. To see your own rate specifically in your area, you can also check out the table below:

Fiona is another popular aggregator to consider. Like Monevo, Fiona collects information from top lenders, so you can review quotes all in one convenient location. Quotes are also personalized based on your unique needs and financial history, so you can confidently compare offers and select the one that best meets your goals. 

Credit cards

Pawn shop loans are generally for small-dollar amounts and offer short repayment terms, but a credit card can get the same job done while providing an opportunity for you to build credit too.

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For the small spenders, the Citi Rewards+® Card is a great option to consider. The Citi Rewards+® card is the only credit card to round up every purchase to the nearest 10 points. In other words, your $2 cup of coffee amounts to 10 points back!

For a limited time, you can earn 5 ThankYou® Points for the first $6,000 a year spent at restaurants, and 1 points thereafter. When you spend $1,500 in the first three months of opening your account you’ll receive 20,000 bonus points.

And to top it all off – you’ll get a 0% intro for 15 months on Purchases. After that, you’ll pay an interest rate of 16.49% - 26.49% (Variable). An intro balance transfer fee of 3% applies per transfer (minimum $5) when completed within the first 4 months of account opening. After that, the fee will be 5% per transfer (minimum $5).

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The Chase Freedom Flex℠ card also offers an enticing sign-on bonus. After spending just $500 in the first three months on your Chase Freedom Flex℠ card, you’ll receive a $200 cash back bonus! Fortunately, the perks don’t stop there.

You can also earn 5% cash back on eligible purchases in rotating categories (on up to $1,500 in combined purchases) that change every quarter, 5% on travel purchased through Chase Ultimate Rewards®, 3% cash back on dining and drugstore purchases and 1% cash back on all other purchases. Plus, you’ll get a 0% Intro APR on Purchases for 15 months and 0% Intro APR on Balance Transfers for 15 months. After that, you’ll pay an interest rate of 17.24% - 25.99% Variable.


Pawn shop loans can provide an attractive solution for individuals with poor credit who need nothing more than a short-term, small-dollar loan; however, for most people, the benefits of bypassing credit requirements and getting cash quickly are minuscule next to the interest rates alone.

In many states, interest fees reach up to 25%, not to mention the added costs for storage and such. Of course, on top of these steep fees, borrowers risk losing precious property, from antique family heirlooms to expensive electronics.

Before you stroll down the street to your local pawn shop, consider alternatives like personal loans or credit cards. 

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About the author

Photo of MoneyUnder30 writer Kate Van Pelt
Total Articles: 49
Kate Van Pelt is a writer and editor based in the Pacific Northwest. She has a bachelor’s degree in business management and English and has established her professional career in marketing and research writing. Since 2015, Kate has created educational materials covering a variety of financial topics, from home loans and credit cards to retirement accounts and estate planning. She spends her free time thrift shopping, making cocktails, and enjoying the outdoors with her dogs, Vira and Elmer.