Dear Dr. Don,
Can you borrow money against your jewelry? What “gotchas” should I be aware of? Would you consider giving me a couple pointers?
— Larry Loans

Dear Larry,
You can borrow money using jewelry as collateral. Just pull out the yellow pages and look under “pawnshops” to find a lender in your area. The Bankrate feature “Pawnshops provide cash in a pinch” explains the basics and points out some common misunderstandings about the pawn business model.

The feature points out that 70 percent to 80 percent of the pawned items are retrieved by their owners. I would have estimated that number as being much lower than that. While interest and fees are high, pawnshops are regulated by the state. They are considered nonbank financial institutions.

You should be able to borrow about one-third of the resale value of your piece of jewelry. Contracts vary by state, but a typical loan would be for three months. There’s a grace period on top of that before the pawnshop can foreclose on the asset.

In some states, funds from the sale of a foreclosed asset realized in excess of principal and interest becomes the property of the person who pawned the item.

Pawning a piece of jewelry can make more financial sense than a payday loan, a loan against your car title or the outright sale of the jewelry. Get to know your local pawnbroker and the terms of the pawn agreement.