How pawn shops work

Cecil Whig - - & & -

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.

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