smart spending

Pawnshop 101: What you need to know

"Pawnshop loans are nearly all state-regulated, and 'finance charges' can vary from 5 percent per month to 25 percent per month. In Indiana, the 'interest rate' is capped at 36 percent APR or 3 percent per month, but pawnshops can charge an additional 20 percent per month service charge, making the total allowable finance charge 23 percent per month," says Krupnik.

In New York, the maximum interest rate is 4 percent per month, and a service charge of up to $10. The interest rates may seem steep, but Murphy says these aren't meant to be a substitute for bank loans.

"These are what we call 'safety net loans' and are usually for life emergencies." The typical fee, he adds, is often lower than the cost of a bounced check or a disconnected utility.

To learn the maximum rates allowed in your area -- along with any rules regarding pawnshop transactions -- check your state's Web site; most likely, the information will be in the consumer protection section.

The bottom line: Make sure the pawnbroker clearly explains all the fees involved in your loan before you finalize the transaction. These terms also should be listed on your pawn ticket.

What pawnshops do -- and don't -- want

When considering pawning something, keep these tips in mind:

Don't: Offer anything outdated, difficult to store or cheaply made, Krupnik advises.

Do: Go with jewelry or coins, Harrison suggests. Other good choices, according to Krupnik, are firearms, high-quality tools and musical instruments.

Be prepared for red tape

The pawnbroker is legally obligated to confirm that you are the legal owner of the property.

"They will ask you enough questions about your property to become comfortable with the fact that you own it," says Krupnik. "Do not be offended; the pawnbroker is just trying to make sure that both you and the property are legitimate. Also, if you do business with the pawnbroker, expect to have to show a government-issued ID. It is required by law."

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