Pawn shops provide a quick way for consumers to borrow money, but there are legal aspects that you should consider before handing over your goods as collateral.
So here are five legal tips to consider when getting a pawn shop loan.
How pawn shop loans work. In general, a pawn is deposit of personal property with a pawnbroker as security for receiving a loan. Until the loan is repaid within a specific time period, the pawnbroker keeps your property. If the loan isn't repaid on time, the pawnbroker may sell your item.
What do you need for a pawn loan? The only things you need for a pawn loan are the item you're pawning and identification. You'll also need to provide a complete description of the merchandise. The information is usually sent to law enforcement to prevent stolen goods from ending up in a pawn shop, according to the National Pawnbrokers Association.
Know how much interest you're paying. In addition to holding your property as collateral for a loan, most pawn shops will charge you interest in your loan. While the interest amount will vary by shop, it's important to know up front how much interest you'll be paying because you risk having the pawnbroker sell your item if you're loan isn't repaid on time.
Are pawn shops regulated? Pawn shops must follow state and federal laws. Under federal law, the pawn industry is regulated by the Truth in Lending Act, Equal Credit Opportunity Act, and the Federal Trade Commission rules on Data Privacy and Safeguard of Consumer Information, the National Pawnbrokers Association states. All legal pawn shops must be registered with their states and abide by each state's laws.
Should you call the police or hire a lawyer? If you've repaid your pawn shop loan on time, but the broker refuses to return your property, you may report the theft to local law enforcement. On the other hand, you may also be able to sue the pawn shop for breach of contract. A local consumer protection attorney can help you identify your causes of action and help you get your misappropriated property back.
While pawn shops may be a quick way to get a short term loan, be sure to check that the pawn shop is legally operating in your state and to understand the terms of the loan before pawning your property.