A pawnshop loan is a fast way to borrow a small amount of money, but it can come with serious risks and costs.

You bring in a valuable item, like jewelry, electronics, or a musical instrument. The pawnshop holds this item as collateral and gives you a small loan, usually a fraction of its actual value. You usually have a set amount of time to pay back the loan, like 30 days. When you pay back the loan – plus interest and fees – you can get your item back.

If you do not pay back the loan in time, the pawnshop keeps your item and sells it. You won’t owe the money anymore, but you’ve lost what you pawned.

Pawnshops can charge up to 240% APR

In Illinois, most lenders cannot charge more than 36% APR. This limit does not apply to pawnshop loans. 

Pawnshops can charge finance fees up to 20% per month, which amounts to a 240% APR. This is one way pawnshop loans can get very expensive, especially if you renew the loan. 

For military service members and their families: Pawnshop are required to follow the Military Lending Act. This means that they cannot charge more than 36% APR for loans to active duty military members and their families.

Pawnshop loans and your credit score

Pawnshops generally do not run a credit check and the loans do not affect your credit score. If you don’t pay you loans, you will not face debt collectors, lawsuits or collections. Instead, you can lose the property you pawned.

Pawnshop loan rules

The Illinois Modernizing Pawnbroker Regulation Act provides some protections for consumers.

Loan and grade period

Pawnshop loans must last at least 30 days. 

If you don’t pay by the due date, the pawnshop must extend the loan by another 30 days before it can sell your property.

Disclose costs in writing 

Pawnshops are required to tell your about the true cost of the loan in writing, including:

• When your payment is due,
• The total finance charges (interest and fees), 
• The total you must pay back, and
• The annual percentage rate (APR) computed under the Federal Truth in Lending Act.

If something seems wrong

Before taking a pawnshop loan:

• Look for less costly alternatives, and 
• Ask the pawnshop to show you all fees in writing. 

Complaints against pawnshops can be directed to the Illinois Department of Financial and Professional Regulation, the Office of the Illinois Attorney General, and the Consumer Financial Protection Bureau.