How does a pawn shop work?
Pawnbrokers lend money on items of value. These can range from gold and diamond jewelry to musical instruments, televisions, tools, household items, etc.. Each pawn shop usually will specialize in one area. These items maintain their value over a reasonable period of time and are easy to store, especially jewelry. All customers provide collateral, eliminating the need to distinguish high risk from low risk borrowers like a bank does. Typically, loans are small averaging between $70 and $100, although they can be as small as $5 or as high as several thousand dollars depending on the value of the collateral. Contracts vary from state to state, but the average loan period is 60 to 90 days. Generally, interest rates will vary with the amount of the loan, with the rate decreasing as the loan amount increases. The process is much the same as any other lending institution, with the primary difference being the size of the loan, the collateral and the holding of the merchandise until the interest or the loan has been repaid.
Why would someone go to a pawn shop to get a loan?
Pawnshops offer the consumer a quick, convenient and confidential way to borrow money. A short term cash need can be met with no credit check or legal consequences if the loan is not repaid. A customer receives a percentage of the value the broker believes the collateral would bring in a sale. Although the loan to collateral ratio varies over time and across pawnshops, a loan of about 30-50 percent of the resale value of the collateral is typical. In other words, pawnbrokers feel their loan is "paid in full" at the time it is made. When a customer pawns an item, terms of the loan are printed on a pawn ticket that is given to the customer. The ticket states the customers name, address, type of identification provided to the pawnbroker, a description of the item, amount lent, maturity date, interest rate and amount that must be paid to redeem the item. Most states regulate pawnshop interest rates and other charges, such as storage or insurance fees.
Do most pawning customers lose their merchandise?
On average, 70 to 80 percent of all loans are repaid. Repeat customers make up most of a pawn shop's business, similar to any other lending or retail establishment. Pawnbrokers know the vast majority of their customers because they often borrow against the same items over and over again. Pawnbrokers offer non-recourse loans, looking only to the item being pledged to recover their investment if the borrower chooses not to repay the loan. It is solely the choice of the customer whether he/she elects to repay the loan. Unlike other type of loans if a customer decides not to redeem the item in pawn then the item becomes the property of the pawnbroker and the pawnbroker puts the item out for sale. In the case of scrap good and damaged jewelry the pawnbroker will send that off to a refiner to be melted down. Sometimes a pawnbroker wholesales items to other retail outlets o wholesalers.
What happens it a loan defaults?
If a customer defaults on the pawn, the collateral becomes the property of the pawnshop after the loan is overdue by a specific amount of time, generally one to three months. Most states require the broker to notify by mail the pawn customer that he or she will loose the right to his property unless he or she redeems it within the stipulated grace period. In case of default, some states require the collateral be sold at public auction. Thirteen states and the District of Columbia require any surplus from the sale of the collateral over the amount owed the pawnbroker, including accumulated interest and any costs related to the sale, to revert to the pawner.
How can I be sure the merchandise I purchase at a pawnshop isn't stolen?
Less than one half of one percent (0.005%) of all loans are identified as stolen goods. Thieves and robbers are a pawnbrokers worst enemy. Pawnbrokers work closely with local law enforcement to catch and prosecute these criminals. A customer must provide positive identification at the time of the pawn transaction. This information is then presented to the police department, therefore decreasing the likelihood that a thief would bring stolen merchandise to a pawnshop. Pawnbrokers are trained to look for signs of stolen property to avoid these costly mistakes. It is not in the interests of the pawnbroker to accept potentially stolen merchandise because the police can seize the merchandise and the pawnshop owner loses the collateral and the loaned money.