Need Cash? Pawn Something.
Pawnshop: I’ve likely just conjured in you these feelings and images: Desperate people, stolen property, addicts, the low-income section of your community, shady characters. If so, you suffer from “pawn shop stereotyping, my friend. If you have no emergency fund, in my book you have been, are, and likely will again fit the “desperate” piece of this stereotype. So don’t rule out pawnshops—there are worse ways to get cash in a crunch!
How Pawn Shops Work
If you own something of value that’s apt to sell readily, you can convert it to cash at a pawnshop.
Let’s say you own a flat screen television but you need money instead. The guy who runs the pawn shop—the pawn broker—knows from experience how quickly and at what price your TV is likely to be bought by the customers who frequent his shop. With this knowledge, he’ll make you a cash offer for your TV, building in his desired profit margin. Let’s say he offers you $75. Haggling is part of the adventure; don’t be afraid to make an argument for more and a counteroffer.
Initially, the pawnbroker isn’t actually buying your TV; he’s lending you money, and the TV is his collateral. He’ll give you a pawn ticket to document the loan, and you leave with seventy-five bucks.
Your Options After Pawning Something
You’ve got $75 and the pawnbroker has your fancy television. Now you’ve got a few options:
- Forget about the TV and keep the $75. Think twice and set up an emergency fund before you buy another TV.
- Return to the pawnshop before your TV is put on the display floor and offered for sale (typically after 30 days) and buy it back. Of course it’s going to cost you more than $75. (That’s business—it’s not personal!) Factoring in pawnshop fees and interest, you might have to pay $90 to get your TV back.
- Return to the pawnshop before your TV is put on display and offered for sale and pay the monthly fee—$15 in this example—to give yourself another 30 days to try to come up with the $90 needed to buy back your TV.
Worse Choices Than Pawning
So what’s a $15 fee for loaning $75 for 30 days work out to? About 240% annual interest. Ouch. But when you don’t have an emergency fund, you may not have a good, cheap option for meeting an urgent need for cash. For example, these choices would cost you more than pawning something you own:
- Get a payday loan. APRs typically range from 400-600%.
- Take out a bank advance direct deposit loan. These relatively new products are your friendly neighborhood bank’s entry into the lucrative payday lending business, and they’re equally costly.
- Get a credit card cash advance. On top of a higher (compared to purchases) interest rate that applies immediately, not just if you let the balance ride as with purchases, you’ll get zapped with a fee often ranging from 3-5%. You’ll make your card issuer’s favored customer list!
The Moral of This Story
If you cringe mightily at the thought of pawning something and all the other options mentioned here for meeting a cash crunch, that’s good! Now you’ve got inspiration to get to work on establishing an emergency fund. Until that’s done, if you need cash, you may have no good options.
What About Pawnshops?
Have you ever pawned something? How did it work out? Or have you ever taken advantage of the great prices you can often find at a pawnshop?