Does it Pay to Pawn?

By Sarah Grossbart

So you need cash fast and are considering visiting a pawnshop with your great-aunt's watch. Here's how pawning works: A pawnbroker loans you money-up to three-quarters of the item's resale value-and you'll usually have up to 90 days to pay it back at a high interest rate. If you can't, you're off the hook for the loan, but the shop keeps your things. Because of this risk and the high interest, pawning is often a last resort. But if you decide to do it, here's how. Photo by Shutterstock

Have a plan to pay back your loan-ASAP
To avoid hemorrhaging money, pay back the loan fast-ideally within 30 days. Brick-and-mortar pawnshops tend to charge anywhere from 3% to 25% interest per month, and online pawnbrokers cap out around 10% (by comparison, the current average credit card interest rate is about 15% a year). At the high end, that means a $400 loan could cost you $100 monthly-or $300 if you pay off your loan in three months. Because of potentially super-high interest rates and strict deadlines, only pawn to settle a debt that can't wait for your usual paycheck. If you're not sure when you'll be paid next, or you're hoping for a windfall, pawning is a bad idea.

Related: Check out 10 things you didn't know you could rent.

Don't pawn your grandma's ring
While gold, silver and platinum jewelry and luxury watches are in-demand items, if you can't bear to lose it, you shouldn't pawn it. Experts estimate that some 15% of their customers never get their items back, even if they fiercely intend to.

Don't settle for the first offer
Comparison-shop for lower interest rates, look out for hidden fees and-most important-make sure the company you're dealing with is legit. If you don't like the offer you're given, walk away. Another pawnshop may give you what you want.

Related: Discover 9 buys that are cheaper online.

Consider selling the item
Some pawnbrokers will pay up to 80% of the resale value for items like jewelry, precious metals and gems. (You're unlikely to get much, though, for items such as consumer electronics, power tools or musical instruments.) If there's a decent chance you won't be able to repay the loan in full, pawning a high-value item for a fraction of the value and then paying interest on the loan will hit your wallet harder than if you'd sold it right off the bat.

Scam alert!
Five signs a pawnshop might not be on the up-and-up

There's a bad buzz about it. Don't ignore word of mouth-read reviews of shops in your area online and ask friends where they've had good experiences.

You aren't asked about the origins of your item. A legitimate pawnshop should do a background check to make sure the item isn't stolen.

An online pawnbroker offers you full resale value for your item. An honest pawnbroker can't make a profit if he pays you the same amount for which he'd sell your valuable. You don't want to send it off on a promise and never hear from the pawnshop again.

Your instincts say it's shady. If the pawnbroker doesn't give you clear answers, or you have a bad feeling about the shop, keep moving.

Related: Master the best body language for any situation.

The pawnshop is not a member of the National Pawnbrokers Association (NPA). This is not a guarantee of trustworthiness-however, a broker must be licensed under state and federal laws to join the NPA, and adhere to the group's code of ethics.

SOURCES: Andy Anderson, director of processing, ePawnMarket. Ashley Broad, general manager, American Jewelry and Loan, Detroit, star of Hardcore Pawn on truTV. Daniel Delnoce, director of marketing and sales, ePawnMarket.

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