3 Reasons Why You Should Consider Online Loans Than Going a Pawn Store


Many people turn to pawn loans when they’re short on cash and even shorter on options. It’s easy to see the appeal of the pawn shop loan at first glance. You don’t need good credit nor are you required to fill out reams and reams of loan paperwork.

However, the simplicity of a pawn loan is also deceptive. If you’re in need of some cash, here are three reasons why you might be better served if you apply for a more traditional installment loan online.

3 Reasons Why You Should’ve An Emergency Fund

emergency fund

1. If You Don’t Have Physical Collateral, Then There Is No Pawn Loan

According to Credit Karma, a person who gets a loan from a pawn shop must bring something to pawn. In other words, this borrower needs physical collateral in order to borrow money from the pawn shop. If you have no collateral to offer, then you get no loan.

2. Pawn Shop Limitations

Another reason why online loans may work better for you than a pawn shop loan will has to do with the inherent limitations that come with a pawn shop loan.

First of all, you may not have “pawnable” valuables, meaning that you can only get money from a pawn shop if you have an item that the pawn shop already sells.

For example, many pawn shops concentrate on items like electronics, jewelry, sports equipment and the like. You may have something of value, say a first edition of “Harry Potter” but you may still not be able to pawn it. (Granted, this is a dramatic example, but you’ll see why we chose it in a second.)

Most pawn shops don’t sell books at all. Therefore, you won’t get a loan from the pawn shop if you bring in an item that the pawn shop doesn’t normally sell, like the book in the example.

Second of all, you’re limited by the dollar value of the item you want to pawn. If you only need a loan of about $150, then you’re good. That’s the average amount that pawn-loan borrowers get from taking out a loan from a pawn shop: $150.

On the other hand, many online lending institutions offer signature loans. That means that if you fit the company’s basic requirements, like having a stable source of income, living environment, etc., then you can borrow more, often into the thousands.

3. High APR Percentage

Nerd Wallet points out that the interest rates on pawn loans can be prohibitive for most borrowers. Not only does this cost them extra money, but it also puts them into a cycle of debt that’s difficult to get out of.

Approximately 15% of people who borrow money from a pawn shop don’t repay their loans. Given that a 30-day loan from a pawn shop can have an interest rate of 182%, it’s easy to see why this might happen.

On the other hand, an installment loan will come with a contract, which spells out the number of payments you need to make. It’ll also include the interest rate on this paperwork, which allows you to see how much you’re borrowing in total.

Final Words

Borrowing money from a pawn shop comes with quite a few risks like high interest rates and the chance that you’ll lose something of value if you can’t pay the loan off. Additionally, the amount of money you can get from a pawn shop may not be equal to what you can borrow from a more traditional lender, even an online one.

Finally, because a pawn loan is going to come with some very high interest rates, you may get into a cycle of debt that’s hard to beat. While it’s always better to keep an emergency fund, it does take time to save the money necessary to keep that fund filled with a decent amount of money.

Given that a loan that you take out from an online lender usually comes with a better deal than you’ll get from a pawn shop loan, you may want to borrow from an online lender until you can fully stock your emergency fund.

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Author: Cathy Carter