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Dear Personal Loan Adviser,
I need a short-term loan for $500. I’m trying to decide between taking out a personal loan, using a payday loan or pawning something. Which option would you recommend?
— Louie Lender

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Dear Louie,
It depends. You need a small loan for a short period of time. A personal loan is likely to have the lowest interest rate and fees of these 3 options, but these lenders aren’t really looking to loan small amounts for short periods of time.

Pawning something you own can work, but for you to get $500 from the pawnshop, the item you pawn might need to be worth $1,200-$1,500. You’ll pay a high rate of interest, a ticket fee, and often a storage and handling fee. The maximum interest rate charged varies by state, from a low of 30% to a high of 300%. The loan term also varies by state but is typically between 1 and 4 months.

Payday loans are regulated

Payday loans are also regulated by the states. According to the PEW charitable trusts, “Payday loans are available in 36 states, with annual percentage rates averaging 391%. The other states effectively prohibit these loans by capping rates at a low level or enforcing other laws.”

If you choose a personal loan over a payday loan, you’ll find the best rates at

PEW also states, “The average payday loan borrower is in debt for 5 months of the year, spending an average of $520 in fees to repeatedly borrow $375.”

If you don’t have sufficient funds in your account when the payday loan comes due, your bank will charge you overdraft fees. If the lender doesn’t get repaid, it can sue. If the lender wins a judgment against you, it may be able to garnish your wages or take money from your bank account. While payday loans often have optional renewals from one payday to the next, it’s an expensive option.

Personal loans have lower rates

A personal loan should have a lower interest rate and fees associated with it than either the pawnshop loan or the payday loan.

Personal loans typically don’t have prepayment penalties, so you aren’t penalized for paying off the loan early.

The peer-to-peer lenders will quote you an interest rate without affecting your credit score. The issue with the personal lenders is that you’re looking to borrow only $500, which is far below most lenders’ minimum loan amounts.

Peer-to-peer lending is one type of personal loan transaction. Don’t forget to compare rates at

You didn’t explain your financial situation in great detail, but if a personal loan can help you with another financial goal, like debt consolidation, along with providing the $500 you need to make ends meet, it could be a better option than pawning jewelry or taking out a payday loan.

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