Pawnshops are a source of credit for many low-income consumers and those who have fallen on hard times and need quick cash. Pawnshops are governed by state laws and make loans to consumers for relatively small amounts. In return, consumers pledge an item of value (for example, jewelry) as collateral (security) for the loan. If the borrower does not make required payments on time and defaults on the loan, the collateral becomes the property of the pawnshop after a specified period of time, typically one to three months.
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