Avoid Pawn Shops. Pawn Shops have been around for hundreds of years. They take in goods of value, making loans against them as security. Here’s how they typically work:

  • Customer brings in an item
  • Pawn shops tells customer how much it’s worth
  • Gives customer a loan for that amount
  • A fee is also added to the loan amount
  • The loan is usually due in two weeks
  • If the loan is not paid back, the item can be sold by the pawn shop. Or, an individual can renew the loan and pay another fee.
  • Interest rates may be in the range of 200-500% annually
  • (Source: NeighborWorks America)

2. Beware of Rent-to-Own companies. A product priced at $500.00 could cost you more than four times that amount over a two-year period from a Rent-To-Own retailer. There is no legal limit on late fees, so your total cost may be excessive. If you don’t pay on time, Rent-To-Own stores will repossess, leaving you without the goods and your money. (Source: CDR Lissa Ann Wohltmann, USN. “Beware the Small Print when Getting a Short Term Loan” – Navy Lifelines, reviewed January 30, 2006).

Here’s an actual example of a Rent-To-Own purchase of a washer and dryer:

Navy Exchange