Are Pawn Shops Good Places To Buy and Sell Stuff?

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You may have passed by one every day on your way to work or walking your dog and never really noticed it: the local pawn shop. The local pawn shop is a great place to find many things you need and many things you’ll never need, but it’s also a great place to learn a few lessons.

I’ve been watching Pawn Stars for a few years and have learned more about US history than I ever did in school.  It got me thinking about whether or not a pawn shop is actually a good place to buy and sell goods.  Let’s investigate.

There are three things that happen in any pawn shop hundreds of times every day:

People Borrow Money

To obtain a loan from a pawn shop, you need to own something of value. If you take it to a pawn shop, they will be able to give you cash immediately.

You then pay interest every month (or sometimes every day) until you want to buy the item back for the amount you borrowed against it.The item must have a salable value equal to or larger than the loan that is being issued. Pawn shops charge anywhere from 10% to 25% per month in interest.

Due to the high rate of interest, most loans are short term. Contracts vary from state to state, but the average loan period is 30 days. Otherwise you will have paid in interest just as much as you borrowed.

If interest is not paid, the pawn shop keeps and then sells the item that was put up for collateral. If the customer pays back the loan (with interest) on time, the item is returned to the customer. A loan of this type is a non-recourse loan, which means that in the event of default by the borrower, the pawn shop may only collect the item being pledged as collateral (i.e., the pawn broker cannot go after the personal assets of the borrower).

On average, 70% to 80% percent of all pawn shop loans are repaid. Pawn shops are frequented by repeat customers who are looking for access to cash quickly. Many times, customers borrow against the same item over and over again.

People Sell Stuff

It’s the pawn broker’s job to be in the know about prices for all sorts of items. For example, if a customer offers a working DVD player, the pawn broker knows that he may be able to sell it for $50. He might offer the seller $30 for the item, anticipating that he could make a $20 profit.

If the pawn broker determines that the item cannot be resold, he will not make an offer to buy the item. The pawn broker must be fairly sure he can resell the item before he takes the risk of buying it.

The difficult part for any pawn broker is finding a market for a particular item.  The very reason why someone would want to sell something to a pawn shop, rather than sell it on their own, is because they don’t know how (or can’t find anyone to buy their item).  Unfortunately for the seller, the legwork can cost a pretty penny.

People Buy Stuff

For some, a pawn shop is the ideal place to find a bargain. Pawn brokers work hard to attract those looking to buy items, perhaps by displaying their best items in the window. Pawn brokers, if they are smart, may also have the store set up in such a way that customers can easily find what they are looking for.

The pawn broker also has to be very astute at keeping records, as many criminals steal jewelry and electronics and then attempt to resell them to pawn shops for quick cash. Because of this, pawn brokers have to keep accurate records of all items they buy or sell.

In some states, pawn brokers are required to collect the names, addresses and copies of identification from the individuals who sell them the items. That way, if it is discovered that an item for sale has been stolen, law enforcement officers will have an easier time tracking down the culprit.

Pawn shops, unfortunately, get a bad rap and are generalized as establishments that attract “low quality” people or indigents and derelicts. However, this is not always the case.

Indigents and derelicts generally have no assets to use as collateral. The typical pawn shop loan customer is employed, living within one mile of the store, is of either sex, and occasionally needs short term cash for an unexpected bill such as a medical expense or car repairs.

Due to the small amount of money needed and the inability of a bank to assist in a transaction of this nature, people rely on pawn shops. The typical pawn shop retail customer is a bargain hunter, and can come from any walk of life. In fact, they may just be smarter than all of us, as pawn shops can offer consumers merchandise at 30-50% off retail price!

Clearly, if you’re shuffling pawn shop loans every month to pay the bills, you need to figure out your underlying financial problem. But if you need quick cash, want to sell unneeded items, or are in the market for a bargain, head to your local pawn shop!

Published or Updated: March 20, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. You can pick up a few deals at a Pawn shop, but they have a lot of competition on their hands with the online marketplace now. I think they will slowly die a death as we move towards selling everything on sites such as ebay.

    • Scott says:

      disagree I own a pawn shop for last 3 years, even with the developement of web business people still will want to look at the item and now exactly what they are buying with out getting something they thought they were getting. Also others are unable to get a loan from a back in such short notice and that is the main business for our industry.

  2. Paul says:

    Bill, there will always be a place for pawn shops. People like a hands on experience!

  3. Dave says:

    A pawn loan is meant to be a short term product. It is the only non-recourse financial product that gives the customer a choice. When one initiates a pawn, they have two choices that they know about up front. If they want the tangible personal property back that they used as collateral, they need to repay the pawn (principle and finance charges) within the regulations set forth by their state or enforcement agency. If they decide to forfeit the pawn, they simply lose the collateral. It does not affect ones credit score or creditworthy status, and no bill collectors will call. I think Paul is correct in his thinking.

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