PawnShops.com

According to the recent data about 28% of United States adults do not have a bank account. That alone can explain the ongoing popularity of pawnshops. In fact, the business model for the pawnshop existed as much as 3000 years ago!

Following are some other statistics about pawnshops and their customers:

• The average age of a customer is age 36
• He has a household income of $29,000
• 80% of pawnshop customers are employed
• 82% have a high school diploma or equivalent
• 33% of customers are homeowners
• The average loan is for $80
• The average redemption rate is 80%
• Approximately 30 million Americans obtain pawn shop loans each year
• Pawnbrokers have to follow 12 federal laws and numerous other state license and regulation requirements

How Pawnshops Work

A pawnbroker provides secured loans to their customer. The loans are secured by collateral—usually some personal property of the customer. The customer can either buy back (recover) the item with interest or leave it there. If it’s left there, the pawnbroker may sell it.

For example, let’s say you pawn a fur coat. The pawnbroker gives you $500 for it. He’ll hold the coat for 30 days.  If you can pay the $500 back plus maybe 20% interest ($100) within 30 days, you’ll get the coat back. If you can’t, the pawnbroker will put it up for sale.

Since the pawnbroker has physical possession of the item, if you do not repay the loan, it will not be reported to credit bureaus.

Determining the Value of the Items

Probably the most important part of the pawnbroker’s job is determining the value of the item being pawned. Common items being pawned or sold to the pawnbroker for resale include jewelry, high end clothing, electronics, musical instruments, firearms (if the proper state and federal licensing and regulations are followed) gold and silver, collectibles and many other items.

One of the biggest risks a reputable pawnbroker takes is that the item being pawned might be stolen. That’s why there are laws that require a pawnbroker to establish identification (via photo id) of the customer and in some cases having the pawned item be subject to a holding period.

The pawnbroker uses guidebooks, does internet searches, calls in experts and relies on his own experience to determine value. He also examines the item for damages, repairs that may be needed and anything else that can affect salability of the item.

Once the pawnbroker determines that the piece is not stolen and can be sold, he buys to resell (assuming he’s licensed to do so) or takes the item as collateral on a loan.

Then, he has to turn the assessed value into a loan amount.

Determining the Loan Amount

The following factors have to be taken into account to determine the amount of the loan:

• The item’s retail and wholesale value
• Supply and demand for the item
• The likelihood that the customer will recover the item

For example, if you purchased a fur coat 10 years ago for $5,000. It has a little wear and tear and it shows. It’s the middle of summer so demand is down and you’re not working.  How much do think you’ll get from a pawnbroker for that item?

However, many of these factors are highly subjective. They’re based on the experience of the pawnbroker and the presentation of the customer.

Loans

Pawnbrokers provide a quick, convenient and confidential way to borrow funds to fill a short term cash need. Unlike other short term loans like credit cards and payday loans, obtaining a loan through a pawnbroker has a built in discipline. By its very nature, you cannot get overextended or go into a debt spiral by getting a loan from a pawn shop.

A pawnbroker makes money off of the interest of the loan. This is why he wants to accept an item that the customer is going to want to recover after having paid that interest. Otherwise they’re just a second hand reseller of goods.

National Pawnbroker Association

Many pawnbroker belong the National Pawnbrokers Association. This group devotes itself to pawnbrokers by helping them to:

• Enhance the image of pawnbrokers
• Promote efficient and ethical business practices
• Promote responsible borrowing
• Refuse to accept any item that appears suspicious or stolen
• Work closely with law enforcement
• Guarantee satisfaction to their customers
• Support working with lawmakers
• Be accountable to the best pawn broking practices

Pawn Stars

You can see how a pawn shop works by watching the History Channel cable television show called Pawn Stars. This program features the operation of a family owned pawn shop in Las Vegas.

It especially depicts how the owner of the pawn shop assesses the value of items and determines how he will make money on them if and when they’

Photo via taberandrew