The Consequences Of Defaulting On A Pawn Shop Loan

Posted on: 23 May 2016

What happens if you pawn an item but can't pay back the loan? Defaulting on a pawn shop loan is very different from defaulting on any other type of loan -- there are fewer real consequences and more things you can do to mediate the situation. This is one of the major advantages of dealing with a pawn shop rather than a cash lender.

You Can Request an Extension to Your Payment Deadline

Before your payment defaults, you can always contact the pawn shop and ask them for an extension. It's up to them whether they actually offer one, but they may be able to modify the terms of your loan for a small fee. If you only need a week or two to come up with the money, they will be more likely to grant the extension. You do need to request this before you default, however, so you should contact the pawn shop the moment that you're aware you may be late.

You May Be Able to Repurchase Your Item at a Later Date

Once your item passes to the pawn shop, they'll likely put it up for sale. You can then purchase the item for their sales price -- or even attempt to negotiate it down. There's nothing stopping you from doing this, though of course the pawn shop itself could refuse the sale (though they aren't likely to). Buying your item back is going to cost you a lot more than the initial loan did, but it can be an option if you have the money later on.

You Won't Have Your Credit Score Affected

A pawn shop loan isn't like a traditional loan. The second you default, your property is essentially used to pay off the loan. You no longer owe any debt because the item has traded hands -- and absolutely nothing will be reported to your credit, even if you were late on multiple payments. In fact, late payments themselves won't be reported via a pawn shop because of this. This is one reason why a pawn shop loan is better for those watching their credit. 

It's always a good idea to contact your pawn shop, like Sol's Jewelry and Pawn, directly and ask them what your options are. The pawn shop may be able to work out a deal with you or extend your repayment time. Either way, if you don't communicate with them, your item will likely be sold.