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How Do Pawnshops Work?
by Liz Jones
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Pawnshops offer a convenient way for a person to obtain a loan without having to go through a credit check or long waiting period. One simply brings in an object of value, such as jewelry or household appliances, and borrows against the item's worth. The pawnshop owner will evaluate the item presented and offer an amount he can loan on the item, usually half of fair market value. The consumer then either makes the loan or chooses against it.
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If the consumer chooses to go forward, he uses this property as collateral for the loan, which means the pawnshop owner keeps the merchandise if the consumer defaults on the loan. The consumer supplies ID to the pawnshop owner, such as a driver's license, and signs a contract stipulating that he is receiving money for this object as a loan. The contract will stipulate all of the terms, including when he must pay back the loan and the percentage rate of the loan. The customer then leaves the shop with cash.
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When he is ready to pay back the loan, the customer returns with the agreed upon cash and gives this to the pawnshop owner who retrieves his merchandise. Some pawnshops allow payment by check or credit card. If the customer does not pay back the loan within the agreed upon period, usually 120 days, the merchandise becomes the property of the pawnshop who then sells it to get his money back.
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A customer can also pawn merchandise, which means he brings an item into the shop with no intentions of buying it back. The pawnshop offers him an amount for the piece. He loses any rights to this property at this time. Of course, he can still go back and purchase the piece if it is still there, but in these cases, the pawnshop will put the item up for sale right away.
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Pawnshops charge higher rates of interest than banks and other traditional financial institutions. However, if a person cannot get a loan elsewhere or does not wish to have a traditional loan, the extra interest rate may be worth the benefits that pawnshops offer. If one cannot pay back the loan, he simply loses the piece he brought in. He does not get a black mark on his credit record, and no one will call him to request he pay the loan. Pawnshops are popular avenues for getting money fast because there is no red tape and no consequences for loan default.
