Pawn shop loans: how they work and what they cost

How a pawn loan works

You bring in jewelry, tools, electronics or another item. The shop values it, offers a loan for part of that value and gives you a pawn ticket that shows the amount, the charges and the date you must redeem the item. You get the item back when you repay the loan and charges.

Read the ticket carefully and keep it safe: in Texas, for example, the regulator tells consumers what to do if a ticket is lost (Texas OCCC ↗).

What it costs

Pawn charges are regulated by states, not by one federal cap. Texas’s Office of Consumer Credit Commissioner gives this example: on $100, the charge could be $20 per month, which is 240% APR (Texas OCCC ↗).

Our arithmetic using the Texas ratio; your state’s rates may be lower or higher.

If you do not repay

If you miss the deadline, the shop can keep the item and sell it. Some states give a grace period before that happens. Check your ticket and your state’s rules on whether anything else can be charged.

Because the shop holds the item, a pawn loan works differently from an unsecured loan: you risk the item rather than a bank account debit or a lawsuit. That is also why it does not help you build credit.

Repeat use

The CFPB’s 2021 research found that many people who use payday, auto title and pawn loans in one year are still using them a year later, and that most had recently had trouble paying a bill or expense (CFPB research brief ↗). If you are pawning to cover regular bills, look at the budget gap rather than the next pawn.

Servicemembers

The Military Lending Act’s 36% limit applies to pawn loans for covered servicemembers and their families; the CFPB sued a large pawn chain in 2022 for making loans above that rate (CFPB ↗).

Pawn loan vs title loan vs payday loan

Cheaper options to try first

• Ask the company you owe for more time or a payment plan — the FTC lists this first among cheaper options (FTC ↗).
• A payday alternative loan from a federal credit union: APR capped at 28% and an application fee of no more than $20.
• A bank or credit union personal loan paid back in installments.
• A cash advance app for a small gap until payday — check the express fee and any membership.

Questions

Does a pawn loan affect my credit?

Pawn shops generally do not need a credit check. Not repaying means losing the item rather than a collection account, but check your state’s rules.

Can I negotiate the amount?

Yes, the amount offered is the shop’s choice. Compare more than one shop and know the item’s value before you go.

Is selling better than pawning?

If you do not expect to repay within the term, selling avoids the monthly charges. If the item matters to you and you can repay soon, a pawn keeps the option to get it back.