Pawn Loan Q&A: How They Work and Why They're Popular

If you’re like many people, you’re a little bit tight on cash following the expense of the holidays. One way to make some money is to take a loan from a pawn shop on the value of your jewelry or coins. Here’s a brief question and answer on how a pawn shop loan works, and the benefits of loaning, as opposed to selling, your valuable jewelry or coins.

How does a pawn shop loan work?

The pawnbroker will determine the value of the item you are selling. 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 90 days.

If the customer agrees to the price and terms and conditions, he or she will receive cash in the amount of the agreed upon loan. The item then becomes collateral against the loan. The customer will receive a pawn ticket with his/her 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.

Once the loan, plus any interest is paid back, the customer receives his or her item back. If a loan is not repaid in the agreed upon time, and no monthly interest payment is made, the broker will appropriate the item and cancel the debt. 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.

What are the benefits of taking a loan from a pawn shop?

Primarily, convenience. Pawn shop loans are a fast way to get cash. It is also easier than a bank loan because a credit check and co-signer are not required.

Also, many people feel a sentimental attachment to a piece of jewelry. They may want to keep it as an investment or pass the piece down to their children. A pawn loan is a quick and easy alternative to selling. 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. It's common knowledge that banks have tightened their lending standards over the last few years, so, for many, a pawn loan is a viable option to a traditional loan.

Where should I get a pawn loan?

There are many sources to sell or get a loan on jewelry and coins, including mail order sites and retail jewelry stores. However, pawn shops generally pay faster than some other outlets, and will usually pay in cash. Before agreeing to a pawn shop loan, do your research. Is the pawn or jewelry store reputable? Can you talk to or read testimonials from satisfied customers?

Make sure the pawn shop is licensed and regulated by the state and/or local authorities. Also ask if the pawn shop is insured and if your item will be locked up and safe. Before you get your item appraised, be sure the appraiser is properly trained and experienced. Finally, make sure you understand how the appraiser determined the appraisal value of the item and all the terms and conditions of the loan.

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