Making the Most of a Pawn Loan

Taking a pawn loan against the value of your jewelry or other item, has become a popular way to get cash quickly. But how do pawn loans work, and is it right for you? Read this Q&A to find out how a pawn loan works and if one is right for you.

What is the main benefit of a pawn loan?

Many people feel a sentimental attachment to a piece of jewelry. They may want to keep it as an investment or bequeath it to their children. A pawn loan is a quick and easy alternative to selling the item. You also do not have to qualify for the loan or go through a credit check like you would with a traditional bank loan. The amount you receive is based on the appraised value of your piece — not your credit rating or other variable. And since many banks have tightened their lending standards over the last few years, a pawn loan is a viable alternative to a traditional loan.

How does a pawn loan work?

While terms and conditions between pawn shops may differ, a pawn loan generally works like this: when you bring in a piece of jewelry or other item to the pawn shop, the property is appraised by a professional appraiser. The appraiser then gives you a price for your item, the interest rate on the loan and other terms and conditions of the loan.

In the case of coins and jewelry, the value is based on standardized industry factors, such as karat weight, rarity and condition. The pawnbroker will then offer a fixed-rate loan based on the agreed upon value, for a period of time, usually 30 days.

If you come to an agreement, you will receive cash in the amount of the agreed upon loan. The item then becomes collateral against the loan. You’ll receive a pawn ticket with your name and address, a description of the pawned item, the loan amount and the maturity date. The local police will also get a copy of the receipt. Pawn shops vary, but most pawn loans are two or three months, along with a grace period. Once the loan, plus any interest, is paid back, you’ll receive your item back.

Can I get an extension on the loan?

Many pawn shops offer extension and/or renewal periods. With an extension, you may extend the length of your loan, as allowed by state law. Most pawn shops will require you to pay a portion of the interest owed.

Another option is a loan renewal. You pay the accrued interest on the loan, and a new loan is written. The original (principal) amount of the loan and the interest rate stay the same, but the due date of the loan is reset for the full loan term.

If you do not repay the loan within the time set forth in the terms, the collateral then becomes the property of the pawn shop. If you cannot repay the loan, you may surrender your loaned item as payment in full or apply for a loan extension or renewal.

Should I do research before taking part in a pawn loan?

Yes. Like any business, the reputation of pawn shops differs. Some are more professional and offer better loan prices than others. Go online and find out as much as you can about the pawn shop or jewelry store you’re interested in. Is the shop reputable? Can you talk to or read testimonials from satisfied customers? Make sure the place is licensed and regulated by the state and/or local authorities. Also ask if the shop is insured and if your item will be locked up and safe.

Before you get your item appraised, make sure the appraiser and the shop is associated with the National Pawnbrokers Association. Make sure you understand how the appraiser determined the appraisal value, and the terms and conditions of the loan.

And keep in mind, the highest loan price doesn’t make the best deal. Do your research before buying, selling or entering into any agreement with a pawn shop. An informed customer is a happy customer.