Are Payday loans better than Pawnshop Loans?

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The high demand for quick cash has made some pawnshops offer secured loans in order to compete with payday loan lenders. Pawn loans are largely unregulated but still highly popular because of the favorable loan requirements. In addition, the pawnshop owner hardly gets in touch with credit reference bureaus whenever the debtor defaults on their loans.

Let’s look at the distinguishing features of pawnshop loans.

1. Mandatory collateral requirement

Pawnshop owners require debtors to submit jewelry, motor vehicles, electronics or furniture in order to secure a loan. Since this industry is largely unregulated, pawnshop owners are at liberty to demand as much collateral as they wish. This situation puts debtors at a disadvantage because most pawnshop owners demand too much.

Pawnshops also impose high collateral requirements to discourage high-risk defaulters from applying for loans.

2. Low credit amounts

Despite the tough collateral requirements attached to pawnshop loans, it’s rare to come across a lender who offers loans worth $5,000 or more. This is due to the low marginal returns pawnshops make purchasing and selling second-hand items. They also stick to giving small loans because the government launches serious investigations when they notice large sums of cash flowing in and out the business’ bank accounts.

Providing small urgent loans enables pawnshops to reach as many customers as possible. This leads to greater revenues generated from interest rates attached to monthly installments.

3. Flexible repayment terms

Unlike a bank or credit lending institutions, pawnshop owners don’t adhere to a written code of conduct when it comes to providing emergency loans. This leeway enables debtors to freely approach pawnshops and negotiate for extended repayment periods without fearing penalty charges. You can also approach your pawnshop for an additional loan so long as you show up with additional collateral assets.

A comparison between payday loan and pawnshop loan requirements

1. Unsecured borrowing

Most payday loan lenders simply ask debtors to submit proof of income during the loan application process. This enables debtors to obtain unsecured payday loans ranging from $100-$5,000 dollars. If you own a business, the creditor will request you to submit bank statements and any pending invoices. This seems to a fair practice compared to the unusually high collateral requirements imposed by pawnshop owners.

2. Access higher loan amounts

Payday loan lenders generate their revenue through imposing interest rates on borrowed loans. Unlike pawnshop owners who are constrained by small profit margins, payday loan lenders offer large payday loans as high as $5,000. The heavy competition in the payday lending industry leads to creditors offering high payday loans to dominate the market.

3. Rigid payment terms

Payday loan lenders adhere to strict credit lending policies created by the government. In order to make a profit and still comply with the government’s laws, debtors have to sign binding agreements before receiving their payday loans.


If you’re just looking for gas money to get you through the week as you wait for your paycheck, it’s better to apply for a pawnshop loan. However, if you need money to finance an urgent order or cover an urgent medical expense, look for a decent certified payday loan lender to sort you out.






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