Credit Building Tips

Does a Pawn Shop Loan Hurt Your Credit Score?

Shaun Connell
June 20, 2023

Pawnshop loans can be an intriguing option for people looking to come up with cash quickly or with less-than-ideal credit.

If you take out a pawnshop loan, though, will it hurt your credit score? Will your credit be damaged if you don't pay a pawn shop loan back?

Solution iconWhile there are definitely some reasons to be wary of pawn shop loans, one good thing about them is that they won't hurt your credit score. Pawnbrokers won't report your payment history to the credit bureaus, and the loan won't appear on your credit report.

Before you grab your grandmother's antique jewelry or your flat-screen TV and start driving to the local pawn shop, you'll want to learn a little bit more about these loans and explore some of your other options.

Understanding How Pawn Shop Loans Work

Also known as a pawnbroker loan, a pawnshop loan is a type of secured, short-term loan. These can be obtained either at brick-and-mortar pawn shops or online pawn shops.

A secured loan is a type of loan where the debt is backed by collateral. In the case of a pawn shop loan, the asset backing the loan is the item of value you leave with the pawnbroker.

  • You can bring practically any value item to a pawn shop to serve as collateral.
  • The pawnbroker will assess the value, condition, and potential for resale of the item and, depending on what they find, might offer you a loan.

If you agree to the loan, you'll leave the item with the pawnbroker. The catch is that they can keep and resell your item if you don't pay the loan back within the time period that was agreed upon.

Pawnshop owners will typically offer a loan that is somewhere between 25% and 60% of the estimated resale value of the item. This will usually be a lot lower than the price you originally purchased the item for.

Not only do pawn shop loans put you at risk of losing a potentially valuable and maybe even sentimental item if you aren't able to repay the loan, but it's also important to note that this type of loan isn't usually very cheap.

Before taking out a loan like this, it's a good idea to assess your other options and make sure you're not going to end up in a worse financial position than where you started.

Does a Pawn Shop Loan Hurt Your Credit Score?

Though there are definitely some pros and cons to weigh out when it comes to taking out a pawnshop loan (which we'll take a closer look at in the next section,) one advantage is that it won't hurt your credit score.

When you take out a pawnshop loan, your payment history won't be reported to the credit bureaus by the pawnbroker. This means that whether or not you repay the loan won't have any impact on your credit. At the same time, making timely payments toward a pawnshop loan won't help you rebuild your credit.

If you're hoping that all of your pawnshop loan repayments will help you improve your credit score, you're, unfortunately, out of luck. On the other hand, if you're worried that your pawn shop loan is going to ding your credit, you'll be glad to know that pawn shop loans won't end up on your credit report.

Beyond that, pawn shop loans won't end up with you being harassed by debt collectors if you fail to pay them back. If you don't pay back the loan within the stated period of time, the pawnbroker will keep the item that you left as collateral and resell it.

The Pros and Cons of Pawn Shop Loans

Is it a good idea to borrow money using a pawnshop loan? While there are definitely some appealing things about these loans, including the fact that they don't impact your credit score and you can get cash quickly, there are also a number of drawbacks to consider.

Potential Benefits

Pawn shop loans can be attractive when you don't have great credit and when you're looking to get a quick loan.

Here are some of the ways that pawnshop loans can be beneficial to borrowers:

  • No credit requirements: For people that aren't eligible for a more traditional loan, pawnshop loans can be appealing because they don't come with any credit requirements.
  • Fast funding: With conventional loans, it takes some time to actually get your hands on the money you're borrowing. At a pawnshop, you can leave an item as collateral and walk out with cash the same day.
  • Doesn't impact your credit score: If you fail to repay your pawnshop loan, you'll end up losing the item you left as collateral. However, pawnbrokers won't report your payment history to the credit bureaus and the loan won't impact your credit score either positively or negatively.
  • No debt collectors: If you don't pay back the loan, you won't have debt collectors calling you and trying to get you to strike a deal and make payments. The pawnbroker will simply take possession of the item you leave and resell it.

Potential Drawbacks

On the other hand, borrowing money from a pawnshop can be risky in a number of ways.

Here are some of the negative aspects you'll want to keep in mind before pawning your valuables for a loan:

  • High-interest rates: By far, the biggest downside to taking out a pawnshop loan is the high-interest rate that almost always accompanies them. According to Rocket Mortgage, the average APR for a pawn shop loan is often around 200% and monthly interest rates can be as high as 20% to 25%.
  • Loss of your item: If you don't pay back the loan, you could lose the item that you left as collateral. Since pawnshops only offer a loan that represents a percentage of the resale value of an item, you likely won't even have received an amount anywhere near the original value of the item. If you have made some payments but failed to completely repay the loan, this can really leave you in a much worse financial position.
  • Additional fees: On top of high-interest rates, there can also be additional fees tacked on to this type of loan for things like insurance, storage, or renewing the loan for an additional term.
  • Low loan amount: You typically won't even get a very large loan from a pawnshop as they will only offer you a percentage of the amount of money they expect they can resell an item for. Some pawnshops might have minimum and maximum loan amounts, while some states have regulations regarding pawnshop loans.
  • Other risks: If you're struggling financially, getting cash quickly from a pawnshop could end up leading you into deeper trouble when you consider the high-interest rate, additional fees, and potential loss of a valuable item. On top of that, while there are certainly reputable pawnshops, there are also some sketchy ones. Always keep an eye out for potential scams, misrepresented interest rates, or other unscrupulous practices when considering a pawnshop loan.

What Are My Other Options?

If you need quick access to cash, but you're worried about the risks of taking out a pawnshop loan, there are other options that you can look into. You'll notice that we don't include high-interest payday loans or title loans on this list-- both of these loan types come with high costs and high risks that make them generally a bad idea.

Other Ways to Borrow Money

What are some alternatives to pawnshop loans when it comes to borrowing money? Here are some other options to keep in mind.

Use a Credit Card

If you have a credit card with a credit available, you can either use the card to make a purchase or even consider a cash advance. However, you'll want to look at the interest rate for cash advances, as the interest rates are often higher than for standard purchases.

That being said, the APR for a purchase or cash advance using a credit card will most likely be significantly lower than the APR you would receive if you took out a pawnshop loan. Of course, you don't want to spend money that you don't think you'll be able to pay back, as this can continue the cycle of debt.

If you have decent credit, you also might be able to qualify for a promotional 0% APR credit card. This means that you won't have to pay interest for a set period of time.

Find a Small-Dollar Loan

A number of big banks and online lenders will offer small-dollar loans to existing customers.

These are short-term loans that will have much more favorable interest rates than pawnshop loans. These do, however, usually require a credit check.

Get a Personal Loan

Personal loans are typically unsecured loans, meaning that you don't have to put down collateral. Even though the interest rates for personal loans are higher than many types of secured loans (auto loans, home loans, etc.), they will usually be lower than the APR you'd find at a pawn shop.

Even if you have bad credit, you might be able to find a lender that offers loans specifically for people in your situation. Additionally, some offer emergency loans. It's always important to check out the terms of a loan before signing on and shop around to compare interest rates and terms.

Take Out a Payday Alternative Loan (PAL)

Payday loans are an incredibly expensive way to borrow money. On the other hand, payday alternative loans (PALs) have a lower interest rate. These are offered by federal credit unions specifically as an alternative that is more affordable to payday loans.

Check Out Peer-to-Peer Lending

Another option is an online lending platform. The rates and terms can vary quite a bit, but the credit requirements might not be as strict as they are for a more standard personal loan.

Look Into Community Resources

There might be local nonprofits, religious groups, or organizations in your community that offer help to people that are dealing with short-term financial problems. There are also a number of federal, state, and local programs that out there to help people with utilities, groceries, medical bills, and other essential expenses.

Ask a Family Member or Close Friend For Help

Though it can be hard to ask someone close to you for financial help, this can help you avoid costly interest charges and other fees. Mixing personal relationships and money can be tricky, so it's important to come up with a clear agreement about how and when the money will be repaid.

Other Ways to Come Up With Cash Fast

Wondering how else you can come up with cash quickly without getting a loan? Here are some ideas to consider.

Sell Your Valuables

The same item you're thinking about pawning could be better put to use by simply selling it yourself. If you're ready to let go of some of your valuable items and you want to turn them into cash, consider selling them through platforms like Craigslist, eBay, or Facebook Marketplace.

Pick Up a Side Gig

There are a lot of side gigs out there you can pick up quickly, such as food delivery, ride-sharing, online tutoring, babysitting, pet sitting, or part-time freelance work. A little bit can go a long way when you're trying to get out of a financial rut, and a side gig might be just what you need.

Ask For an Advance

If you simply need a little extra cash to get through to next week, you might be able to ask your boss or HR department if you can get an advance on your paycheck. This isn't something you want to do all the time, but as a one-time thing, your company might be understanding and willing to help you out.

Check Out Early Payday Apps

There are a number of apps that you can use to receive an advance on your paycheck if you'd rather not ask your boss for a favor. When searching for a cash-advance app, make sure you take a close look at the interest and fees charged.

Rent Out Extra Space

Have an extra room in your home that you don't use? You might consider renting it out short-term using a service like Airbnb or long-term and taking on a new roommate. There are obviously pros and cons to these options, but it's worth considering if you're strapped for cash.

Flip Items

Even if you don't have anything of value that you want to sell, you might be able to find items on sites like Craigslist or Facebook Marketplace that you can clean up and flip for a profit. You can also check out thrift stores, estate sales, and free piles.

Look For Paid Research Studies

If you live near a college or university, it's possible they offer paid research studies that you could participate in. There are almost always parameters you have to meet to participate, and some will pay in gift cards rather than cash. According to Miami Clinical Research, most studies pay between $50 and $300 per day.

Turn Your Coins Into Cash

Have a big jar of coins sitting on your dresser? If you're coming up short this week, you might be surprised how much cash is hidden in that jar. You're not going to find enough to buy a new car, but you might be able to scrounge together some extra cash to put toward your bills or buy some groceries.

What To Do If You're Struggling to Pay Your Bills

If you're considering a pawnshop loan because you're having a hard time paying your bills, here are a few more things you might consider:

  • Try to Cut Costs Where You Can: If you haven't already, take a look at where you're money is going and determine whether there are expenses you can live without for now. For example, if you're paying for streaming services or eating out a lot, consider cutting these costs until you're back on your feet.
  • Seek Help From a Credit Counselor: Credit counseling agencies can help you create a plan to create a household budget, pay off your debt, and negotiate better rates and terms with your lenders. There are also credit repair services you can hire, but you should make sure you understand all of the associated costs before signing on.
  • Ask Creditors About Payment Plans: Your creditors might be willing to agree to a payment plan, which can reduce your monthly payments and give you a little more room to breathe.
  • Ask For Due Date Extensions: Creditors also might be willing to extend your due dates if you just need a little more time to pull some money together. It never hurts to ask!
  • Consolidate Your Debt: If you have a lot of different debt payments, you might be able to consolidate them using a personal loan or credit card. You'll want to run the math on whether or not this will help you save money on interest and any fees associated with the loan or transfer balances to a credit card.

If your credit has seen better days, all hope isn't lost. You can rebuild! Check out our guides to credit repair hacks, removing derogatory marks, and removing evictions, late payments, collections, and hard inquiries from your credit report.

Pawn Shop Loans: FAQ

Finally, let's answer a few other common questions about pawn shop loans.

What's Required to Get a Pawn Shop Loan?

To get a pawn shop loan you'll need to show proof of your identity and be 18 years old or older. Sometimes you'll also need proof of ownership or purchase of the item. No credit check is required.

Is Taking a Pawn Shop Loan Safe?

Though there are rules at both the federal and state level that regulate pawnshops, that doesn't mean that all pawnshop owners are following the rules. It's possible that a pawnbroker could charge a higher APR than what is technically allowed by the state or otherwise engage in predatory lending practices.

There have been a number of lawsuits filed against specific pawn shops by the Consumer Financial Protection Bureau (CFPB) due to their illegal practices.

Taking out a pawnshop loan certainly comes with its fair share of risks, including losing the item you put up as collateral, paying high-interest rates and fees, and even the potential to be a victim of predatory lending. At the same time, pawnshop loans are typically considered a less harmful way to borrow money compared to other options like payday loans or auto title loans.

What Happens If I Don't Repay a Pawn Shop Loan?

If you don't repay a pawnshop loan, you'll lose the item, as the pawnbroker will resell it. You won't get the money back that you put toward the loan, and you won't receive any of the profit the pawnbroker made when they sold it.

What Happens When I Repay a Pawn Shop Loan?

If you repay a pawnshop loan within the time specified in the loan terms, you can retrieve the item you put up as collateral. There are often options for extending loans at pawnshops, but you'll have to pay additional interest and probably storage fees, too.

How Much Money Will a Pawn Shop Loan?

According to data from the National Pawnbrokers Association, the average size of a loan received from a pawnshop in the U.S. is $150. Some shops might have set minimums and maximums for loans, and some states might regulate how much money a pawn shop can loan out and the length of the loan term.

How Long Do Pawn Shop Loans Usually Last?

The terms for pawn shop loans can vary quite a bit, though they typically involve a high-interest rate. In a number of states, legislators have stepped in to try and regulate pawnshop loans. This means that some states will have laws that will dictate how long you can take to pay back a pawnshop loan.

For example:

  • Both North Carolina and Florida have laws on the books that say that pawnshop loans last for thirty days and also include a grace period.

How Much Interest Do You Pay on Pawn Shop Loans?

Interest rates for pawnshop loans are commonly between 5% and 25% a month, typically closer to the 20% to 25% range. There are also sometimes additional fees for storage, insurance, and other costs. This makes it a costly way to borrow money.

What Can You Use As Collateral At a Pawnshop?

You can pawn just about anything at a pawnshop that has value. At the same time, not all pawnshops will accept specific items as collateral for a loan.

Some of the most popular pawned items include:

  • Electronics
  • Collectibles and antiques
  • Tools
  • Jewelry
  • Designer clothes and handbags
  • Musical instruments
  • Guns (must be registered to you)
  • Precious metals

Building Credit to Support Your Financial Goals

Running out to the pawn shop (or finding one online) to take out a loan might not be the absolute worst way to borrow money, but it really isn't the best, either. Though a pawn shop loan won't harm your credit score, it's definitely an expensive way to borrow money and comes with a number of unpleasant risks.

Luckily, there are a number of other things you can do if you need quick access to cash, are having trouble paying your bills, or are trying to borrow money with poor credit.

Though you might have short-term financial woes right now, it's a good idea to start thinking about the big picture. With some attention and dedication, you can work to rebuild your credit over time so that funds are much easier to obtain the next time you need to borrow money.

Is it time for you to start working on your credit to help you gain access to better financial opportunities? If so, make sure you check out our Credit Building Tips blog.

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Written By:
Shaun Connell
Shaun Connell is a personal finance and credit expert with a passion for helping individuals eliminate debt and improve their credit. He's enjoyed writing investing and financial content for over 15 years, with expertise in real estate, debt, banking, credit, and wealth building. His work has been seen by millions on the web.

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