If you are considering taken out a pawn loan, you are probably wondering what might happen if you can’t repay it. Unlike a traditional loan, if you find yourself unable to repay a pawn loan your credit will not be impacted and you’ll never find yourself bombarded with calls from a collection agency.
A pawn loan is a collateral loan, meaning your loan is backed by whatever collateral, often diamond jewelry or gold, you bring in. If you can’t pay back the money you loaned, the only consequence is loss of your collateral. If your diamond jewelry is a piece that has been passed down through generations it’s a risk you may not want to take, however, the vast majority of people who take out pawn loans are able to pay them back.
The process of taking out your loan is fairly simple. Your pawnbroker will collect your collateral and issue you a loan and ticket. Your collateral will then be stored in a secure vault throughout the term of your loan, which is usually around four months, but this varies by state. You can repay your loan at any point in time during that four months paying only the interest for the time period that has passed. At the end of your loan period you can choose to repay your loan, or just pay the interest and receive a new ticket on another loan. Your collateral will be returned to you once you repay the principal, interest and fees associated with your loan.