Pawn shop loans can get borrowers fast funds to cover expenses. But these loans can often come with high interest rates, and the pawn shop can keep the item you provided as collateral if you don’t repay the loan. Let’s dive deeper into how pawn shop loans work and some alternative loans for borrowers that need cash right away.
How pawn shop loans work
A pawn shop loan is when an individual provides an item as collateral, and in exchange, they can receive a loan amount worth 25% to 60% of the resale value. When the borrower pays back the loan within a set period of time, the lender gives back the item.
While these loans require no credit checks or application processing, they have higher interest rates and fees. Along with the risk of not getting their item back if the loan isn’t repaid on time, some borrowers may prefer a different loan option.
What are some alternatives to pawn shop loans?
Here are four alternatives to pawn shop loans:
1. Installment loans
An installment loan gives you a lump sum amount that you can repay over a period of time in fixed monthly payments, or installments. Although it may be tough to find installment loans with no credit check, plenty of lenders have less strict requirements and will consider factors like income and employment history in addition to your credit score when deciding whether to approve you.
Installment loans are useful for making big purchases and offer low-interest rates for those with good credit scores. Since many installment loan lenders report a borrower’s credit history to one of the credit bureaus, they can also help with building credit.
2. Title loans
A title loan lets borrowers use their car as collateral. The loan amount you can receive is based on the appraised value of your vehicle. In many cases, you don’t need good credit to get approved. Title loans typically need to be repaid within a few weeks or months.
The main benefit of these loans is how quickly they can be received. In some cases, borrowers can get a title loan within the same day. But borrowers should be aware that if they don’t pay back the loan, the lender can repossess their car.
3. Cash advances
Cash advances are short-term, small dollar loans that can give you funds to cover expenses until your next payday. You can typically receive a few hundred dollars with these types of loans and repay what you owe in two to four weeks, when you get your next paycheck. Cash advances can be great for borrowers that need to cover smaller expenses, like bills, groceries, and gas.
4. Personal lines of credit
A personal line of credit is a loan from a financial institution that lets individuals withdraw funds as needed, up to a specified credit limit. With this flexible loan, you can borrow as much or as little as you need. Then, you can repay what you owe all at once or over time. Better yet, you’ll only pay interest on the amount you borrow. It’s important to be aware that interest rates are variable with most personal lines of credit, which can result in higher monthly payments.
The bottom line
There are many alternatives to pawn shop loans that can get you the cash you need to cover expenses. From installment loans and title loans to cash advances and personal lines of credit, plenty of options can meet your financial needs. Borrowers can determine the right pawn shop loan alternative to pursue by carefully considering their options and current financial situation.