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How Pawnshops Work

A common Question We get is How Pawnshops Work. Well Here is a little information about pawn shops! Have you ever been to a pawnshop? For a lot of people, there seems to be something, well, shady about these places. But if you haven't been to a pawnshop, you may be missing out on some great bargains. A pawnshop is a lot like a dozen garage sales and a flea market all rolled into one. Pawnshops also play an important role in many communities by providing people with an easy, fast way to borrow small amounts of money. There are three things that happen in any pawnshop hundreds of times every day: People borrow money by putting up something they own as collateral. People sell used merchandise. People buy new and used merchandise.

What's the Deal?


Pawnshops and pawnbroking have been around for thousands of years. The basic idea behind

any pawnshop is to loan people money. It goes like this: You bring in something you own and

give it to the pawnbroker as collateral for a loan (this act is called pawning). The pawnbroker 

loans you money against that collateral. When you repay the loan plus the interest, you get your

collateral back. If you don't repay the loan, the pawnbroker keeps the collateral. Pawnbroker -

Any person engaged in the business of lending money on the security of pledged goods and

who may also purchase merchandise for resale from dealers and traders Pawnshop - The

location at which, or premises in which, a pawnbroker regularly conducts business Pawn or 

Pawn transaction - A written bailment of personal property as security for a debt, redeemable

on certain terms within  60 days, unless renewed, and with an implied power of sale on default

How Much Will You Give Me...


Here is a sample scenario, "How much will you loan me for my wedding ring?"

It's a nice wedding ring -- a standard gold ring with my wife's name and our wedding date engraved inside. Bought new in 1994, the ring cost about $140.


Your jewelry might hold special value to you, but you'd be surprised to learn of what monetary value there is to it.

The answer was, "$10." In return for pawning my wedding ring, I would receive $10 and a pawn ticket. The ticket would indicate the following:

The item that I pawned

The amount of money loaned to me for the item

The amount of money due in 30 days with a 30 day grace period (60 days) to get the item back


My ticket would tell me that, for my wedding ring, I received $10 and that I need to pay a small service fee within a 30 day period to get the ring back. Within 30 days, I have three options:


I can return to the pawn shop and pay the full amount  to retrieve my wedding ring.

I can return to the pawn shop and pay the monthly fee  to extend my loan for another 30 days. At this point, I'd have to enter into a new contract for the next 30 days.

I can do nothing, in which case the pawnshop keeps my ring and sells it.


That, in a nutshell, is the basic pawnshop transaction. In a busy pawnshop, that sort of transaction happens hundreds of times every day. In many communities, the pawnshop is pretty much the only easy way to borrow small amounts of money. If you need $100 to make it through the week to your next paycheck, where are you going to get the money? A bank is not going to touch a small loan like that, and even if it did it would take a week or two to process the application. A pawnshop is a quick, easy way to get a loan.

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