Tread Carefully with Online Pawnshop Loans

Your bank loan was denied. Your friends and family are as cash-strapped as you are. You’re wary of peer-to-peer and other lending scenarios that require credit checks. Have you considered borrowing from an online pawnshop?

Companies such as Pawngo, Pawntique, and PawnUp.com aim to revamp the shady image of the traditional pawnshop by operating only online and offering lower-interest collateral loans than their traditional counterparts. Interest rates can be as low as 3 or 4 percent. Pawngo CEO Todd Hills told CNN Money that more than half of his customers are entrepreneurs.

If you decide to take this route, here are four tips for a successful pawn.

  • Don’t pawn something you’d hate to lose. Of course, you’re counting on being able to pay back your loan. But what if the worst happens, and you aren’t able to return the money in time? If you’d be devastated to lose your grandmother’s antique silver, consider taking out a loan on an item with less personal significance, even if its value isn’t as high.
  • Research the pawnshop. Whether you choose a traditional or online pawnshop, research the business to make sure that it has a pawnshop license and is a member of the National Pawnbrokers Association. Search the web for reviews of the company: If users have had overwhelmingly negative experiences, stay away.
  • Know what your item is worth. When you deal with an online pawnshop, you must send in an item to receive an assessment and an offer (typically, pawnshops provide offers for both a loan or an outright sale). To avoid being taken advantage of, get an assessment of your item before you ship your item. You won’t be eligible for a loan for its full value, but if the shop’s assessment falls short of the other one you received, ask for the item back.
  • Come up with a payback plan. Most online pawnshops offer the opportunity to make interest-only loan repayments. Although these low payments may seem attractive, you risk quickly digging yourself into a deeper financial hole. Before you borrow money, come up with a realistic strategy for paying back the entire loan in as short a time frame as you can afford. If necessary, create a budget of your personal income and expenses to help you determine what that monthly payment plan will look like.

About Kathryn Hawkins

Kathryn Hawkins is a principal at the content marketing agency Eucalypt Media. She's written about business, marketing, and entrepreneurship for publications including BNET, TheAtlantic.com, Inc.com, and owns and operates the positive news site Gimundo. Follow her on Twitter at @kathrynhawkins.
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