How pawn works


If you got a basement or an attic full of valuable stuff that is gathering dust, you may have considered going to a local pawn shop.

Even though you could walk away with some money, people new to pawn shops should learn about how transactions work before they head into the shop.

A pawn shop is a business that offers secured loans to people, with things of personal property used as collateral. The word pawn comes from the Latin pignus, which means pledge, and the items that are pawned to the broker are called pledges or pawn themselves.

Don’t feel afraid or embarrassed about going to a pawnshop.

Here are some things you need to know before going to a local pawn shop.

Don’t believe all the bad things you heard about them. Pawnshops are not the scary and shady places that the media often appear them to be. Instead, pawn shops are regulated by fourteen federal regulations and statues, plus plentiful state and local laws.

Most pawnshops are clean and reputable stores run by people who honor themselves on providing good customer service.

Here is how Pawnshop transactions work:

Pawnshops off loans based on collaterals, which mean that the loan is secured by something of value. You show something that you own, and if they are interested, they will offer a loan. The loan amount will mostly be a small fraction of the value. The pawnshop then keeps your item until you pay the debt of the loan.

You can outright sell your item to the pawn shop, but they much less enthusiastic about this kind of transactions because loans have much more profit potential for the pawnshop.

When you are done with the transaction you will receive a ticket which you must not lose because it not only is the receipt for your item, it also contains the terms of the loan like fees, expiration date and the description of your item.

Pawnbrokers use guidebooks, catalogs, internet search engines and their own experience to determine the value of each item. Some of them have training in gems identification, or just employ a specialist to assess jewelry.

One of the risks that the pawnbroker takes when accepting secondhand items is that it might be counterfeit. If the item is fraudulent, like a fake Rolex watch, it has only a small fraction of the real value that it would have if it were genuine.

Once the pawnbroker concludes that the item is genuine and not stolen and that they can win some money of it, the broker offers the client an amount for it.

You have to understand that the pawnbroker wants to make money. Imagine gold rings like the one you have are selling 200$ at the mall. That is not what a pawn shop is going to loan you. Pawnbrokers want you to repay the loan with interest and get your item back, but he doesn’t want to give you cash and then be stuck with an item he can’t resell with profit. So he sets the item’s price low enough that he won’t lose money and time.

Consider this, if your watch is worth $1,000, a pawn shop will lend you between 500$ and 800$ There are 2 repayment choices: Go back and pay your debt, which includes the amount of the loan plus all added fees and interest, before the time limit. Deadline is usually one four months after the transaction was made.

Or don’t go back and the pawn shop keeps your personal item. There are no other consequences besides losing your item. No effect on your credit report and no collection action.

Some pawnshops, for some additional charges, let their clients extend the loan period up to several months.

According to the National Pawnbrokers Association(NPA), 80% of all customers reclaim their items on average.

I’m going to explain you (sort of) the interest rate that pawnshops charge for the loans:

The amount of money on pawnshop loans are a little complicated because rules regarding fees vary enormously from state to state and it’s just not an interest rate that’s set in stone.

“Interest rate” in this context can be confusing, so it’s better to think of it as “finance charge”.

Pawnshop loans are all state-regulated, and “finance charges” vary from 5 percent per month to 25 percent per month. For example, in Indiana, “finance charges” are capped at 3 percent per month, but pawnshops can charge up to an additional 20 percent per month in service charges, making the total charge 23 percent per month.

However, the pawn industry is changing rapidly and these finance charges are being voluntarily reduced by many pawn brokers, mainly on large pawn loans which are now becoming the norm.

These kind of loans are what people usually call “safety net loans” and are normally for life emergencies. The usual fee is often lower than the cost of a disconnected utility or a bounced check.

You should check your state’s website to learn the maximum rates allowed in your area. The information will most likely be in the consumer protection section.

Make sure all the fees involved in your loan are clearly explained by the broker before finalizing the transaction. These fees should also be listed on your ticket.

The pawnbroker considers the risk that the item might be stolen. Laws in lots of jurisdictions protect both the broker and the community from handling stolen goods unknowingly.

These laws make pawn brokers legally obligated to confirm that the legal owner of the property is you. They also require a holding period placed on an item bought by the pawnbroker to allow some time for local law enforcement authorities to track items that were stolen.

Pawn shops in some jurisdictions must provide a list of all the newly pawned and sold items as well as any associated serial number to the police, so they can determine if any of those items has been reported stolen.

Police departments recommend robbery or burglary victims to go visit a local pawn shop to check if their stolen items were bought or pawned there.

Pawnbrokers will usually ask you enough questions about what you are selling or pawning to become comfortable with the fact that you own it. Don’t be offended, he’s just making sure that both the property and you are legit.

If you do business in your local pawnshop, expect to have to show an id that is issued by the government. Law requires it.

If you have lots of stuff in your house that don’t use and that you want to get rid of. You should come visit us, we are a local Brooklyn pawn shop that has good deals. We will buy what you need to sell. You’ve got some gift cards? We buy gift cards. We buy power tools that you have lying around unused in your house. We can sell your iPhone and we can sell your gold.

We offer quick loans so you can get some easy cash that you may need.