Are Pawn Loans Collateral Loans? How Does Pawning Work?

There are several types of loans. There are collateral loans, unsecured loans, secured loans, savings accounts, credit union loans, online lenders who write loans, home equity loans, credit card cash advances and many others.

Pawn loans are considered collateral loans or secured loans. Collateral loans are mortgages, auto loans, and secured personal loans that require some type of collateral to cover the cost of the loan and the fees and interest.

Each of these loans uses something different as the collateral. If you default on your loan, the lender, in this case the pawn shop, can seize your collateral to cover the cost of the loan.

Why do people get collateral loans?

Finances take a hit when an unexpected expense, medical bill, or car repair comes up. Life happens, and you can’t always be prepared for what is coming around the corner. In some cases, a collateral loan may be the only option for a borrower with either a short or unsteady credit history or whose income is too low to qualify for an unsecured loan.

Collateral loans are best for people who need short-term liquidity. Collateral loans provided by a pawn shop are a financial alternative for many.

There are Pros and Cons to Obtaining Collateral Loans

Pros of collateral loans

Collateral loans do not require an application or credit check. This makes them a good option if someone has no credit, unsteady credit, or bad credit. Most conventional loans require a minimum credit score. People with unsteady credit may not qualify for these types of loans because they can’t meet the minimum credit score.

There is no trouble qualifying.

Collateral loans don’t require information about pay stubs, employment history, credit scores, savings account numbers, credit union accounts, home equity or mortgages, or each valuable asset.

All that is required is a valuable asset that you personally own and are willing to place as collateral to cover the cost of the loan.

The loan agreement is written with specific payment dates, interest rates, and how to extend your loan should it be.

There is no waiting to get the cash you need.

Pawn shops don’t use multiple lenders, they are the lender.

Cons of collateral loans

If you have a sentimental attachment to the property, you want to use for collateral, you need to know the item will be lost if you fail to repay the loan.

Interest rates on collateral loans are typically higher than conventional loans. Collateral loans have lower interest rates than unsecured loans.

You can only get money up to the value of the property you are using as collateral.

Because you are putting up your property as collateral to secure a loan, this can lower the lender’s risk.

Pawn shops will only accept certain types of collateral.

Are Pawnshop an Option for a Collateral Loan?

Pawnshops have been around for many years, and are found in most communities. In 2022, the estimated number of pawnshops is about 9259 across the United States. Most communities will have a pawn shop.

Local pawn shops are available to help with short-term cash needs. Locating one that is trustworthy is important. They provide a great alternative financial solution if you need quick cash.

How Does Pawning Work?

Pawn shops work for the community’s customers, and they offer short-term loans when fast cash is needed.

Pawnshops need to make a profit, they are a business. But they also have a reputation and survive in a community only if the community’s members trust them. This holds pawn shops accountable for how they do business.

The process is quick and easy.

First, go through your closets or unused items and find personal property that you don’t have a sentimental connection to, so you can sell it without guilt. Take the item to your local pawn shop.

Pawn shops will not accept stolen goods.

When you take your item into the shop, the pawnbroker will appraise the item based on fair market value.

Most pawn shops have experts or specialized equipment to test or authenticate your item and ensure it is genuine.

You will need a government issued ID.

After your item is appraised, the pawn shop will make an offer. Pawn shop loans work because the pawnshop holds the items until the loan is paid in full. This is a secured loan.

Once the loan is repaid, the items are returned. If the customer fails to repay the loan, the pawn shop assumes ownership of the item, and then they price it at an affordable price for quick sale.

What Do Pawnshops Offer?

  • Quick cash
  • Affordable – lower prices
  • Buying and selling services
  • Hard to find items
  • Deals

How do you find a deal at a pawn shop?

Deals, discounts, opt-in campaigns, sales, and affordable prices are what everyone wants from a pawn transaction.

Discounts, sales, and opt-in campaigns are typically advertised on their website or in their store. These avenues provide you with ways to get deals on your items or if you are pawning.

Steps to Make Your Pawning Experience Better

Preparing ahead of time will keep you on track for a good deal. Do a little research and gather some information about the item you want to pawn. The information will give you a foundation for negotiating with the pawnbroker for a better deal.

Negotiation helps you get what you believe your item is worth, and also takes into account what the pawn shop needs as well. And the whole process is fun.

Start looking at Google Reviews and other social media reviews. Ask these questions:

  • Do former customers write about having a positive experience at the pawn shop?
  • How did the pawn shop handle any voiced concerns?
  • How many reviews do they have? Do they have an online presence?

Pawn shops must follow state and federal regulations. There are associations with high stands and hold pawn shops accountable. Does the pawnshop you’re considering doing business with have any certifications? Are they a member of a pawnbroker association, like the National Pawnbrokers Association or CAPA (California Pawn Brokers Assoication)?

Look at the Better Business Bureau to see if the shop is in good standing. These details will help you decide which shops to visit.

Collateral Loans Require an Item to Cover the Cost of the Loan

Pawn shops use current market value to help them price their items or determine an item’s value. When you select the personal property you want to consider for collateral, take some time to determine what it is worth. Some things increase in values, while others decrease. Look up the fair market value of the item. You can look at eBay, Marketplace, or search for what is a (whatever your item is) worth?

Another trick is to look on the pawn shops online store to see what the store may have sold or is listing a s similar item for. This will give you an idea of what the shop may be willing to lend you.

Knowing what interest rates are being charged is important, so ask. This will help you decide what type of monthly payments you can afford, and if you want to pawn your item.

One of the most important things to remember when you are trying to find a deal at a pawn shop is to know when to walk away. Sometimes a deal isn’t a deal.

What do pawn shops accept, as collateral?

Whatever the valuable asset you are presenting as collateral, must cover the cost of the loan.

Pawn shops vary and so do the items they will consider for a pawn loan or to buy. They never accept stolen property and work closely with law enforcement to reduce crime.


Technology changes quickly so if you have name brand electronics you aren’t using, a pawn shop may be looking for last year models, gaming consoles in good condition.

They take gaming consoles, high definition televisions, mobile phones, computers, laptops, stereos, speakers and more.


Pawn shops accept name brand tools like DeWalt, Milwaukee, and Ryobi in good working order with attached cords. They also accept cordless tools, air tools, paint tools and other quality items. Often people buy tools for a specific job, and when the job is finished, the tool sets and collects dust. These tools are excellent candidates to use as collateral.

Pawn Loan
gold jewelry bracelets and chains and rings

Gold, Silver, and Precious Metals

Pawn shops buy, sell, and pawn gold, gold coins, gold bullion, silver coins, silver bullion, and other precious metals. They have experts who can test your precious metals and give you a quote.

Pawn shops buy scrap gold and silver and pieces. This means you may work with a pawnbroker in the store to get a deal on the scrap jewelry you have and the cash you need.

Pawn Loan

Fine Jewlery and Watches

Pawnshops have inventories of fine jewelry and luxury watches. They will consider diamond, gold, silver, and luxury watches as collateral for a loan.

Small Applicances

Some pawn shops take in small appliances like Air Fryers, Blenders, and Mixers as collateral for a pawn loan, or they may buy them outright.

Collectibles and Antiques

Pawnshops take in collectibles and antiques as collateral for a secured loan. You may have a unique piece that you would never expect to find locally, and it may be the item to secure a short-term pawn loan. If you don’t want to lose the item because you have to sell it for cash, consider using it as collateral for a loan, so it is returned once the loan is repaid.

Musical Instruments

Pawnshops buy, sell, and pawn musical instruments and sound equipment. they will consider musical equipment and instruments for pawn.

Luxury Handbags

Different pawn shops have large selections of luxury items, including handbags. They will authenticate and appraise luxury items, use the items as collateral for a loan, and also buy quality bags outright. Designer handbags, like Louis Vuitton, Gucci, and others, bring top dollar.

Pawn Loan

Lincoln Pawn Shop In Anaheim, CA

If you need a collateral loan, Lincoln Pawn maybe the place to shop. From $24-$25,000 you can borrow money quickly. They have a first time borrowers incentive.

Lincoln Pawn Shop is a pawn shop that supports their community with short-term secured loans. They work with each customer to help them with their financial needs. They get you cash on the spot, you can keep your item once the loan is paid off, the loan can be renewed or redeemed, and they will work with you on a grace period.