If you are in a situation where you are under financial stress, especially if you have cash flow issues, or you are looking for anything that will keep you out of mortgage trouble for even one more month, you have to look at all available options. Going to a pawnshop for a short term loan, or even to sell some of your property may be an option worth checking out.
If you have never dealt with a pawnshop or a pawnbroker, you should know a few things before you walk through the door or pick up the phone.
1. What is a pawn shop?
A pawnshop is a business that offers short term loans secured by some kind of property. Depending on the particular pawn shop, it may also buy items outright, or sell new or used items.
2. How is a pawnshop different from a payday loan business?
As explained in an earlier Mortgage311.org article, payday loan businesses give you short term loans based on the fact that you have a regular paycheck. If you don't pay back a pawnshop loan, the pawnshop or pawnbroker will simply keep your item, and you will not be charged any additional fees.
3. How does a pawnshop loan work?
The basic procedure is that you bring in the items that you want to pawn (collateral), the pawn shop determines how much it is worth, and gives you a loan based on the value of your collateral (typically about half the value of the collateral). You then get a cash loan, and have some period of time to pay back the loan and fees (typically up to about 90 days), or to pay a smaller amount to renew the loan.
Once you pay back the loan in full, you get your collateral back. The terms of the loan are typically spelled out in writing on a pawn ticket you receive when you get the loan. The information required on the pawn ticket is often determined by local or state laws. An example of the required information on a pawn ticket is in this sample pawn ticket form from the State of Texas.
4. How big of a loan can I get?
That depends on what kind of collateral you have and on the pawnshop you are using. The loan can be in the tens of dollars or in the tens of thousands of dollars, it all depends on what you have to offer and what kind of deal you can make.
5. What happens if I don't pay the loan back?
If you don't pay back the loan, the pawn shop keeps your collateral.
6. Will getting a loan from a pawnshop affect my credit score?
Pawnshops don't check your credit before giving a loan. The item or items that secure the loan are all that you need to get a loan. Also, if you don't pay back the loan, none of the credit reporting agencies will be told.
7. What kinds of collateral can I use to get a pawnshop loan?
Depending on the pawnshop, you can get a loan on almost anything you can imagine. Because pawnshops have to be able to sell your collateral if a loan isn't paid, what they will take depend on the pawnshop. Typical items include things that are both small and valuable. Jewelry, musical instruments, coins, weapons, home electronics, and collectible items are some examples. Some pawnshops take larger items like cars, boats, or motorcycles.
8. Are pawnshops legal?
Pawnshops are quite legal, and in most states operate under specific rules with respect to where they can operate and what services they can offer to the public. You should be sure to only deal with fully licensed pawn shop to provide the maximum protection to you the consumer.
A variety of federal laws and regulations also apply to pawnshops, pawnbrokers, and their customers. Among them are laws and regulations designed to prevent money laundering, require disclosure of credit terms, protect your personal information, and limit interest rates and fees for military personnel.
9. Do pawnshops only do personal loans?
Pawnshops work with individuals or businesses. What matters is whether your collateral is something the pawnshop wants.
10. Are pawnshops only for poor people?
Pawnshops are for anyone who needs a loan and who has valuable items that can be used for collateral. Although it may surprise many people to hear this, rich people have money problems too. Even someone with a six-figure income can be laid off and have a cash crunch.
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