Homework needed before you decide to do business with pawn shops
According to the National Pawnbrokers Association, about 30 million people who don’t have a bank, or access to bank services, use pawn shops every year. Pawn shops offer collateral-based loans, which means you bring an item in that you own and if the pawn broker chooses, he or she will offer you a loan. (The loan amount will likely be a small fraction of the item’s actual value.) The pawn broker will keep your item until you repay the loan. If the loan is not paid within the set time period, the pawned item will be offered for sale by the pawn shop.
Before you give up or purchase an item at a pawn shop, make sure you know what you’re getting into.
In the U.S. alone, there are more than 10,000 pawn shops. As people struggle to make ends meet, many turn to pawn shops for help with a loan. While most states have strengthened pawn shop loan regulation, not all are following the laws. There have been many reports of pawn shops charging more than the allowed annual percentage rates (APR), asking people to sign illegal contracts and deceiving customers about the actual price of their loans.
If you’re considering a loan or purchasing from a pawn shop, the Better Business Bureau offers the following tips:
Research the shop by looking at the website and online reviews.
Ask family and friends for recommendations.
Check licensing and understand pawn shops must comply with the Truth in Lending Act and the U.S. Patriot Act.
Have a professional appraise your items beforehand to know the value.
Know what you’re comfortable paying or pawning for before going into the shop. Do not be afraid to walk away if a pawn shop is not offering you enough for your item.
Compare interest rates and fees on loans that are capped or limited in most states.
Pay on time if you pawn an item. Not doing so will cause you to forfeit your item. Or, ask what the fees are for an extended payment plan if a loan cannot be paid back in time.
Consider it a red flag if a pawn shop doesn’t require some form of identification and paperwork to fill out.
Purchase with a credit card as it’s protected under the Fair Credit Billing Act.
Check the return policy and read the fine print.
Always keep your receipts to verify payment and product.
Don’t be pushed into making a quick decision.
If you believe you’ve been a victim of a pawn shop scam, report the matter to BBB Scam Tracker, BBB. org/scamtracker, or the Federal Trade Commission, Reportfraud. ftc.gov. BBB can also provide a list of BBB Accredited pawn shops and Business Profiles on one’s you’re considering. Visit Bbb.org or call 937-222-5825 or 800-776-5301.