Is a Pawn Shop Loan a Good Idea?

Are pawn Loans Right For You?

For some people, the thought of taking a loan from a pawn shop may make them feel uncertain. However, due to regulations and competition, many pawn shops have evolved into legitimate and sophisticated establishments that cater to people who are looking for reputable ways to sell or get a loan on their unneeded items. Thanks in part to reality TV shows such as "Pawn Stars" and "Hardcore Pawn," pawn shops and pawning has experienced a surge in popularity. With the expense of the holidays here, a pawn loan may be a smart financial alternative to running up your credit cards. Here's an overview of how a pawn loan works, and why it may be for you.

Pawn Loans: A Mainstream Alternative

Due to the struggling economy of the last several years, a loan from a pawn shop has become a viable financial alternative to a bank or other credit loan. In addition to banks tightening their lending practices, the 2009 meltdown of the U.S. economy also saw gold prices skyrocketing to $1,900 per ounce within the next two years. This upswing encouraged people to sell their unwanted gold and silver at the local pawn shop, rather than an unknown mail-based clearing house or faceless Internet site.

Some people are looking for some extra cash for the holidays, while others rely on a pawn loan to help with rising living expenses. Whatever the reason, pawn loans have become a mainstream way to get cash, without having to permanently part with a cherished possession. According to the National Pawnbrokers Association (NPA) 2010 Trend Survey that assesses how the economy has affected the pawn industry, the average pawn loan amount increased to $100, nationally, up from an average of $80 in 2008.

While pawn shops differ in estimate and loan prices, pawn loans generally work the same way between shops.

A customer brings in something of value, from a laptop to a gold coin.

The pawnbroker appraises it and gives a customer a fixed-term loan price for the item, plus interest, and a maturity date of the loan. There is no credit check, as the loan is secured by the collateral.

If a customer agrees to the loan price and conditions of the loan, he/she receives the agreed-upon loan amount in cash, and leaves the item with the pawnbroker as collateral to guarantee the loan.

The pawnbroker will give the customer a pawn ticket with their 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.

When the loan is paid in full, including interest, the customer will receive the pawned item back. If a loan is not repaid, and no monthly interest payment is made, the pawnbroker will keep the item and cancel the debt.

Some pawn shops will allow the customer to extend the loan indefinitely if they continue to pay the minimum payment every month.

Do Your Due Diligence

Like any business, the reputation of pawn shops differ. Some are more professional and offer better loan prices than others. However, 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 in Los Angeles. Make sure you agree to the appraisal estimate, loan price and terms and conditions of the loan. An informed consumer is a happy consumer.