How Does a Pawn Loan Work?

Pawn loans are typically small dollar collateralized loans that people use to cover emergency expenses or other expenses where they need quick cash. Most people are familiar with bank loans and the process of using credit history to obtain a loan in which you then make monthly payments on until you have repaid the loan plus the interest. Often these payments can stretch out over years.

Not everyone is familiar with a pawn loan, however. The dollar amount of the pawn loan will be determined by the worth of your collateral and not your credit score. They tend to be smaller amounts than bank loans and come with shorter terms. An average loan will be about four months. You will not make payments during this time. At the end of the term you can repay your loan and get your collateral back or you can choose to pay the interest and renew the loan.

Pawn loans are usually insured and your collateral placed in a secure area, oftentimes a vault. If you pay the loan off early, your collateral is returned to you and you will not accrue new interest charges. Frequently bank loans have prepayment penalties in which you pay extra interest. Pawn loans are a safe and simple way to quickly get emergency cash.