How pawn shops work
In the wake of America’s big economic crisis back in 2008, dollar stores and thrift stores have seen a big resurgence. And now, another kind of retail quasi-lender is commanding all kinds of attention from sellers and buyers: pawnshops.
A pawnshop, owned and operated by a pawnbroker, makes secured loans on personal property that customers leave as collateral. The customer can redeem the property when the loan and loan interest are paid off.
Interest rates charged by pawnshops, which in some states are regulated by state and local laws, can range from 5 to 6 percent per month. That’s high, I know, but we’re talking very short-term loans here. And the loans are on merchandise that is often used and in some cases suspect because it’s impossible for the broker to predict the collateral’s true value, should he have to sell it to recoup the money lent.
Pawnbrokers accept a variety of personal property as collateral — jewelry, clocks, computers, firearms, art, electronics and collectibles. When a pledged item is not redeemed, brokers are required to notify the customer that the loan period has expired and give the customer a final opportunity to redeem the property. Once expired, the broker has the right to sell the item. In some states, the pawnbroker gets to keep the full proceeds from the sale; in others, once the loan and interest is recovered, the balance of the sale price, or some portion thereof, is paid to the pawner.
A pawnshop may not be the best place to liquidate items you wish to sell outright. But for the person who needs some quick cash and is willing to put up something of value to secure a loan, a pawnshop could be the right choice.
Now, let me point out the upside of a pawnshop: bargains. Go to a pawnshop if you’ve never been to one. Expect to find a large variety of jewelry, power tools, electronics, cameras, computer games and computers.