The Pros and Cons of Pawn Shop Cash Advances

Pawn shops are a common sight in pretty much every American town or city. But what do you actually know about pawn shops? Other than watching a couple episodes of Pawn Stars, do you know how pawn shops actually work? If you were in a financial bind, would you choose to turn to one for a quick "cash advance?"

If you don’t know the answers to those questions, you’ve come to the right page. We’ll lay out how pawn shops and their cash advance products work, and we'll also break down the pros and cons of a pawn shop loan compared to similar types of financial products. It won’t be as fun as Pawn Stars, but it’ll be a heck of a lot 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 then have to repay plus interest. The loans they issue are secured loans, which means they use a valuable piece of property as collateral.

One of the big differences between a pawn shop and a regular lender is that you actually bring your collateral to them and they hold on to it until the loan is repaid. If you can’t pay them back, 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’s securing the loan. But with a pawn shop loan, that isn’t so.

Another difference with pawn shop cash advance is that your collateral isn’t something massive like a car or a house, it’s something small, like a piece of jewelry or a TV or a vintage comic book. And while some small items can have a very high value, most of them are worth much less than a car or a house. As such, the amount you’ll borrow from a pawn shop is much smaller compared than the amount you'll borrow with traditional personal loans.

What are the terms for a pawn shop cash advance?

While the amount you can borrow from a pawnshop will depend on what item you use as collateral, it is common for the broker to only offer you 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 your loan back plus interest before the pawn shop can put your item up for sale.

Those short terms can make it difficult for people to pay their cash advance back 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 your loan back more difficult.

And 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 state to state, the experts at Nolo.com state that pawn shops often charge anywhere from 15% to 240% interest on their products, depending on state and local laws. Plus, many shops can add additional fees and charges on top of that.

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 check, no credit worries. While there are many types of no credit check loans out there that don't care about your credit score, all those loans could still 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. Even though pawn shop loans have very high interest rates, they are still often much cheaper relative to payday and title loans, which can have APRs that average 300% or higher. If you have bad credit or no credit, this loan is 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.)

Get in, get cash, get out. Most no credit check lenders and cash advance shops will get you your money quickly, and pawn shops are no exception. And you'll 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 pretty 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?

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

Revving up the debt cycle. With short-term loans like these, there is a good chance that you won’t be able to pay the loan back on time. In cases like that, pawn shops will often let you extend your due date in return for additional fees or interest. This can lead to a predatory cycle of debt, wherein you’re constantly throwing more money at your cash advance loan without ever getting closer to paying off the loan itself.

Those interest rates are still super high. The point of securing a loan with collateral is that it makes lending that money less risky for the lender. If the borrower doesn’t pay them back, the collateral ensures it won’t be a total loss. And 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 are still charging APRs between 15 and 240%. These are only a win-win if you’re the lender. They win either way.

You can’t borrow that much. As we mentioned before, the amount you’ll be able to borrow with a pawn shop cash advance will depend on the value of the item that you’re pawning. But the fact remains that you’ll only receive a fraction of what that item’s really worth. With an average loan size of only $150, pawn shop cash advances don’t make for a great solution to emergency expenses. Given the cost of living these days, a couple hundred bucks won’t get you very far at all.

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, you are still putting your valuables at risk when you pawn an item for some extra cash. If it’s something you don’t care about seeing again, then you don’t need to worry. 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 loans might be a safer option than a predatory payday loan, but they still come with plenty of downsides all their own. If you need quick cash to pay for an unexpected or emergency expenses, odds are that a pawn shop may not cut it.