Published: Monday, January 8th, 2024

A young man with curly hair is sitting on a couch holding a credit card and computer while smiling.

When considering pawning an item1 for a quick influx of cash, one of the most common concerns people have is: "What happens if I can't pay back my pawn loan? Will there be any penalties?"

The short answer is, no, you won't be hit with penalties like with auto loans from traditional lenders; you'll simply lose the item being held as collateral for the loan. This loan doesn't harm your credit score or financial history.

Let's dive deep into the workings and myths of pawn shops, particularly EZPAWN, and what happens if you're unable to pay off your loan.

1. How Pawn Loans Work

Two EZPAWN employees, one a team member and the other a manager, are helping a customer pawn an item at the counter.

At its core, a pawn loan is a straightforward transaction: you provide a valuable item as collateral, and in return, the pawn shop lends you a certain sum of money.

Pawn loans are different from traditional loans because you're offering an item as collateral. EZPAWN, like other pawn shops, will assess the value of the item you're pawning and offer you a loan based on its estimated worth. The loan term and pawn service charges will be defined upfront. Let's look at the steps required to get a loan from a pawn shop:

Bring your item in

  • EZPAWN lends on most items with no credit check and no hassle. Anyone 18 years of age or older (certain states may impose higher minimum ages) with a valid government-issued ID can qualify for a pawn loan.

To learn what kinds of items can be pawned, visit our recent article.

Get a personal loan

  • EZPAWN will evaluate your item and let you know the cash amount we are able to lend. If you accept the offer, we will then hold your item and you leave with cash. The time period for the loan varies depending on state law. And rest assured, when your item is in our care, we keep it safe and secure.

Find a location

Pay back your loan, or don’t

  • To retrieve your item, just pay off your loan plus any additional fees and or service charges. Of course, should you need more time, we offer extensions and renewals, as permitted by law. If you choose to surrender your collateral, there is nothing further you need to do. You are free to not pay off your loan without judgment or any impact on your credit score. And you can always get another pawn loan should you need one!

2. No Impact on Your Credit Score

A young professional male is sitting on the couch looking at his phone with translucent glasses while checking his credit score.

Credit scores play a pivotal role in the world of financial transactions and personal loans. They dictate terms of loans, interest rates, and even one's eligibility for certain financial services.

However, pawn loans emerge as an anomaly—a breath of fresh air for those concerned about credit implications.

One of the biggest benefits of a pawn loan is that it doesn't affect your credit score. This means that if you don't pay back the loan, pawn shops, like EZPAWN won't report you to credit agencies. Your credit score remains unchanged, and you won't have to worry about any long-term financial implications on that front.

Pawn Loans Are Different

Pawn loans are unique. Unlike traditional loans, where a lender provides funds based on a person's creditworthiness and credit history, pawn shop loans are backed by physical collateral—the item or items you pledge. Because the loan is secured by this tangible asset, credit checks are not a concern at all for pawn shops like EZPAWN.

Defaulted? Don't Worry!

So, what happens if you can't pay back the pawn loan?

Traditionally, defaulting on your loans can lead to negative marks on your credit, making future borrowing more difficult and expensive. However, with pawn loans, the scenario is different. If a borrower is unable to repay, EZPAWN will not report anything to credit agencies. Instead, the pawned item serves as a safety net, serving as collateral for the pawnbroker.

Preserving Future Financial Opportunities

Since pawnshop loans do not affect credit scores, you can feel safe knowing these loans won’t derail your financial future. Whether you're planning to take out a mortgage, apply for a credit card, or secure an auto loan, your interaction with the pawn shop remains a discreet affair. Regardless of your situation, you can approach future pawn loans with confidence.

3. Loss of Collateral

An EZPAWN team member is doing inventory in the back. He’s holding an iPad and marketing a TV in the back room.

While there's no traditional "penalty" per se, if you choose to not repay the pawn loan, you'll forfeit the item you pawned. Fundamentally EZPAWN, or another pawnbroker, has purchased your item for the pawn value. The pawn shop will take ownership of the item and can then sell it to recoup the money they loaned you after a certain period determined by law. This is the primary way pawn shops ensure they're covered if a loan isn't repaid.

4. Extension Possibilities

A close-up of a person signing a contract while another person's hand points where to sign.

If you find that you're nearing the end of your loan term and can't make the payment, many pawn shops, including EZPAWN, often offer the option to extend or renew your pawn loan, as permitted by law. However, this might involve paying additional fees to extend the loan period or renew the pawn loan.

Note: Extension options vary by state so it's not up to the pawn shop if an extension is possible. Make sure to consult an EZPAWN Team Member before making this decision.

Let's delve deeper into the pawn loan extension process, how it works, and what borrowers should be aware of.

What Does Extension Mean?

An extension of a pawn loan means that the borrower is given additional time beyond the initial loan term to repay the principal amount. This is especially beneficial if you find yourself in a situation where the original repayment date is approaching, but you're not quite ready to settle the loan.

The Process at EZPAWN

Let's discuss the steps you should take if you find yourself needing an extension on your loan.

Step 1 - Ask

If at any point during the term, you realize that repaying your loan by the original due date isn't feasible, it's imperative to communicate with the pawn shop. More often than not, they'll offer a solution in the form of a loan extension.

Step 2 - Addressing Interest

When opting for an extension, per state laws, it is required that the customer pays all interest owed before extending the loan. This settles any pawn service charges that has accumulated on the original loan amount.

This does two things: it keeps the principal loan amount unchanged and gives the pawnbroker some assurance, recognizing that they're also taking on additional risk by extending the loan term.

5. No Legal Action Against You

A court room hammer, scale and book are center frame. A grey background fills the rest of the frame.

Unlike some other lending institutions, pawn shops won't take legal action against you if you do not pay off the loan. The arrangement is straightforward: if you can't pay, you lose the item. There's no legal pursuit or additional fees involved.

Avoiding Legal Action

Traditional lenders often need to embark on legal routes to recover their money. This can involve court cases, wage garnishments, or even seizing assets - processes that are time-consuming, expensive, and stressful for the borrower. With pawn shops, the relationship is clear-cut from the onset. There's no impending threat of legal action looming over your head, no paperwork avalanche, or legal jargon to navigate.

Peace of Mind Loans

Pawn shops, in their approach to loan repayments, offer a straightforwardness that's rare in the financial world. By ensuring that repercussions are limited to the value of the pawned item, they provide borrowers with clear expectations and reduce the anxiety often associated with borrowing. It's a testament to the simplicity and transparency that has made pawn shops a trusted financial resource for generations.

6. Transparent Policies

An older man is sitting on the couch with his arms behind his head while looking up and smiling.

It's always a good practice to discuss and understand the terms and conditions with the pawn shop when taking a loan. EZPAWN prides itself on transparent and customer-friendly policies, ensuring customers are aware of the loan terms and any potential consequences.

When you engage with EZPAWN, you aren't simply provided with the loan's pawn service charge and repayment period. We take the time to explain the entire process—how evaluations are made, how loan amounts are determined, what happens in the event of potential late repayments, any associated fees, and options available if repayment becomes a challenge.

It's a proactive approach, aiming to prevent misunderstandings and to ensure that customers feel secure and informed throughout the loan duration.

Tips for Successful Loan Repayment

A guy smiling and making a fist while holding his phone in the other hand with a bright yellow background.

Read the Terms: Before pawning an item, carefully read and understand the terms of the loan agreement. Ask questions. This will help you plan for repayment.

Regular Communication: If you're unable to repay on time, don't avoid the issue. Reach out to EZPAWN and explain your situation. They may be willing to work with you to find a solution.

Explore Extensions: If you need more time to repay, inquire about extending the loan term by paying the accrued pawn service charge and fees. This can give you the breathing room you need.

Plan Ahead: Before pawning an item, ensure you have a clear plan for repaying the loan. Consider your finances and how you'll manage the repayment within the agreed-upon timeframe.

Pawn Loans Are EZ

A couple is sitting on the couch while the girl holds the credit card, and the guy holds the laptop computer.

By dispelling the myths surrounding pawn shop loans, borrowers can approach their financial needs with confidence.

Pawn loans are a convenient way to get quick cash using items you own as collateral. If you do not pay off your pawn shop loan, you won't be penalized. While there's no traditional "penalty" for not repaying a pawn loan, the main consequence is losing the item you've pawned. The pawned item simply becomes forfeited, and the pawn shop owner can now sell your item. However, nothing bad happens to your credit and nothing is reported.

Moving forward, always approach pawn loans with awareness and understanding, and remember that most pawn shops, including EZPAWN, prioritize clear communication and customer well-being. If in doubt, always ask an EZPAWN Team Member and ensure you're comfortable with the terms before proceeding.

Remember, EZPAWN is here to help! We've been specializing in helping customers make successful loan repayments for over 50 years!

(1) - Item evaluation and amount of cash offered on purchases or pawn transactions is at the sole discretion of the Pawnbroker. Conditions apply. Pawn transactions are a loan subject to terms and conditions, including fees. Please see a Team Member for additional information.