How a Pawn Loan Works
Does It Pay to Pawn?
Have a plan to pay back your loan—ASAP
To avoid hemorrhaging money, pay back the loan fast—ideally within 30 days. Brick-and-mortar pawnshops tend to charge anywhere from 3% to 25% interest per month, and online pawnbrokers cap out around 10% (by comparison, the current average credit card interest rate is about 15% a year). At the high end, that means a 0 loan could cost you 0 monthly—or 0 if you pay off your loan in three months. Because of potentially super-high interest rates and strict deadlines, only pawn to settle a debt that can't wait for your usual paycheck. If you're not sure when you'll be paid next, or you're hoping for a windfall, pawning is a bad idea.
Don't pawn your grandma's ring
While gold, silver and platinum jewelry and luxury watches are in-demand items, if you can't bear to lose it, you shouldn't pawn it. Experts estimate that some 15% of their customers never get their items back, even if they fiercely intend to.
Don't settle for the first offer
Comparison-shop for lower interest rates, look out for hidden fees and—most important—make sure the company you're dealing with is legit. If you don't like the offer you're given, walk away. Another pawnshop may give you what you want.
Consider selling the item
Some pawnbrokers will pay up to 80% of the resale value for items like jewelry, precious metals and gems. (You're unlikely to get much, though, for items such as consumer electronics, power tools or musical instruments.) If there's a decent chance you won't be able to repay the loan in full, pawning a high-value item for a fraction of the value and then paying interest on the loan will hit your wallet harder than if you'd sold it right off the bat.
Five signs a pawnshop might not be on the up-and-up
There's a bad buzz about it.Don't ignore word of mouth—read reviews of shops in your area online and ask friends where they've had good experiences.
You aren't asked about the origins of your item.A legitimate pawnshop should do a background check to make sure the item isn't stolen.
An online pawnbroker offers you full resale value for your item.An honest pawnbroker can't make a profit if he pays you the same amount for which he'd sell your valuable. You don't want to send it off on a promise and never hear from the pawnshop again.
Your instincts say it's shady.If the pawnbroker doesn't give you clear answers, or you have a bad feeling about the shop, keep moving.
The pawnshop is not a member of the National Pawnbrokers Association (NPA).This is not a guarantee of trustworthiness—however, a broker must be licensed under state and federal laws to join the NPA, and adhere to the group's code of ethics.
SOURCES: Andy Anderson, director of processing, ePawnMarket. Ashley Broad, general manager, American Jewelry and Loan, Detroit, star ofHardcore Pawnon truTV. Daniel Delnoce, director of marketing and sales, ePawnMarket.
Video: How does a pawn shop work?
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