Pawn shop loans allow you to borrow money on personal property, typically jewelry or other expensive items. They are a popular alternative to payday loans or credit cards. But they come with high interest rates, and your items are at risk of being lost to debt collectors if you fail to pay back your loan. If you’re in a financial pinch, consider examining lower-interest alternatives like saving cash or taking out an unsecured personal loan.

How a pawn shop works

Pawn shop loans can bring in a variety of items to sell, from musical instruments and tools to electronics and cars. The pawnbroker assesses the value of the item, and issues a short-term loan based on that value. The customer is given a certain amount of time, often 30 days, to pay the loan (interest and fees) in order to redeem their item. If they don’t, the pawn shop will have the right to sell it to recoup the loan.

How a pawn loan is priced

The interest rates on pawn shop loans are very high, and vary by state. In New York, the maximum interest rate is 4%per month; in Florida it’s 25%per month, or 122% APR. Consumer advocates consider that an outrageous rate for a small collateral loan.

Pawnshop loans also offer less protections than traditional mortgages or auto financing, and they can be much harder to repay than a loan from your bank. If you need to borrow, consider lower-interest options like personal loans or borrowing from a family member. And always check your credit before getting any kind of loan.