Pawn loans are a popular way for people in financial need to get cash quickly. However, they can also be dangerous for borrowers and lead to a cycle of debt. Learn more about these loans, including their risks and alternatives, before you consider one.

What Are Pawn Loans?

A pawnshop is like any other lender, except they use valuable items of value as collateral instead of your credit. When you bring an item to a pawnbroker, they will appraise it at its current market value and offer you a short-term loan for a percentage of that amount. If you don’t pay back the loan within a specific period, the item is typically offered for sale in the store (known as being “hocked” or “popped”).

If you are interested in reclaiming your item, return to the pawnshop by the end of the loan term to pay off your loan plus fees and reclaim your item. If you need more time, pawnshops may offer extensions or renewals as permitted by law.

When compared to conventional borrowing options, such as payday loans and credit cards, pawnshops have many advantages. For example, there is no application process and credit checks are not part of the lending process, which can make it easier for people with low credit scores to qualify. Additionally, a pawnshop will not report your loan to the credit bureaus, so even if you default on your pawnshop loan, it won’t have an impact on your credit score.…