So one of the questions that people will often ask when thinking about making a pawn loan for the first time is if pawn shops charge interest on the pawn loans they make.
Honestly, that’s a completely reasonable question to ask, particularly when you are not all that familiar with pawn shops to being with.
Pawn shops do charge interest on the loans they make, but it’s often very affordable.
The interest that pawn shops charge for the pawn loans that they make for their customers is often going to be much less than the cost of a re-connection fee, or bounced check.
For instance, in Ohio, pawn shops charge 5% interest per month for the loans that they make. There is also an addition $4 storage charge per state law.
What that means is that if a customer makes a pawn loan for $100, they will pay $5 in interest and $4 for storage – or $9 for the loan.
When you compare that $9 that the pawn loan costs the customer, you will see that it is much less than just about any fine or fee that the customer could face should they instead neglect or not pay a bill that’s due because they didn’t have the money available.
What Is The Interest Rate For?
Another question that I will sometimes see asked is “Why do pawn shops charge interest at all?”
Well, that’s because that a pawn shop is a business, specifically a financial institution, and just like any other financial services based business, when they loan money they will need to collect an interest rate in order to stay in business.
Without charging this interest rate, there would be no incentive for pawn shops to make loans at all. Instead they would only offer to buy the items and not make loans on them.
Are Interest Rates At Pawn Shops High?
Typically speaking, the interest rates that pawn shops charge are very affordable.
This of course will vary from state to state, but it can range for as low as 2% on up to 25% in some cases. Typically speaking, the close you are to the North East portion of the county, the more affordable the loans are.
Of course, that is just a generalization and won’t apply in every state.
Additionally, pawn shops can opt to reduce the interest rates that they charge in very competitive environments to attempt to earn your business by providing the same service as their competitors but at a lower price for their customer.
How Are Pawn Shop Interest Rates Charged?
Typically speaking, pawn shop interest rates are charged in 30 day, or 1 month periods, and not annually.
That having been said, some states parse out the maximum rates a pawn shop can charge in annual periods, but that will often just get divided by 12 to determine the monthly interest rate that the pawn shop will charge you for your pawn loan.
Are Pawn Shop Interest Rates Fair?
When a pawn shop makes you a loan on your items, they have to worry about storing your item, it’s safety, the space in order to do that and the costs associated with making sure that their pawn shop is properly insured and secured.
Keeping that in mind, the interest rates charged by pawn shops are extremely fair as none of these concerns are cheap for the pawn shop to maintain and guard against.
Additionally, pawn shops offer a very unique kind of loan that you can’t find from banks or other standard loaning institutions.
The short term loans that pawn shops offer are meant to help you through emergency situations and aren’t long term financing and therefore, the rates charged are designed to fit into that particular financial requirement.
Should You Make A Pawn Loan?
If you have some items that you don’t have an immediate need for or aren’t currently using, then making a pawn loan could be a great way to get you out of whatever financial pinch that you are currently in.
Pawn shops are well-lit, friendly businesses that are there to help you when you need it the most.