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Which is Better: Payday Loans or Pawn Shops?

Often, many people find themselves without enough cash on hand to make it to their next payday.

In such situations, there are a few options available to help make ends meet. Two of these options include payday loans and pawn shops.

Payday loans, also referred to as cash advances, are short-term financial services that offer borrowers a repayment window of 14 to 31 days. Unsecured lenders typically require the borrower to provide a check written out for the amount of the balance or the borrower's bank account information in order to obtain the funds.

With a pawn shop, the borrower exchanges an item of value for a short-term advance. The store then holds the item until the balance is repaid.


When deciding between these two types of short-term loans, it is important to carefully examine each option to determine which one is the best option for you. In your examination, you will find several drawbacks associated with these businesses that could lead you in the direction of your nearest provider.

These lending services offer more convenience than pawn shops.

When securing funds from a pawn shop, you have to physically go to the store. Additionally, many stores are not open 24-hours per day so you will need to be able to go the location during its regular business hours, which might not work for your schedule.

In contrast, you can secure money any time of day via the Internet. All you need is a computer and your bank account information and you can secure funds quickly and easily.

These services do not require collateral.

In order to get cash from a pawn shop, you have to hand over an item of some value. Often, desperate individuals will hand over expensive electronics or heirloom jewelry that has been in their family for ages. This process can be a painful ordeal. Additionally, you are at risk of losing that item if you miss your repayment due date for any reason.

With short-term financial services, you do not need any collateral to secure the funds so you won't have to risk of losing a cherished item in order to get the money you need.

Pawn shop loans are less than the value of your collateral.

In order to cover their expenses, these businesses do not give borrowers the real value of their collateral. If a borrower is unable to repay the amount owed, the business will sell the borrower's item at a price higher than the loan in order to make a profit off of the transaction.

Since these services do not require collateral, you do not need to worry about how much you can get for the item you are handing over to the shop.

Pawn shops charge extra fees that short-term lenders do not.

In addition to interest on the principal, a shop can charge many other fees. These fees often include the cost to appraise your collateral, the cost to submit information about your collateral to a police database to ensure it is not stolen, and the cost to store the item. Additionally, some cities charge the shops transaction fees that go towards police resources - these fees are then passed on to the customer.

When you borrow, the only fee you need to pay is the interest associated with the service, which is communicated to your up front.