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Pawn Shops

Learn how to buy and sell safely at pawn shops.

Need a quick buck? [© Shutterstock, 2010]
© Shutterstock, 2010
Need a quick buck?

Pawn shops provide a service for both sellers and buyers, but all parties should be aware of the nature of this type of loan and retail establishment.

How Pawn Shops Work

Pawn shops operate by providing a service in two directions. First, people in need of a cash infusion can sell electronics, jewelry and other items of value, or they can simply place those same items as collateral and take a loan. In this circumstance, sellers have the option of returning to the pawn shop to retrieve items and pay the balances due on their loans.

Sometimes, balances due represent an exorbitant amount of interest. Often, pawnbrokers and sellers develop relationships, as customers may repeat the same sales multiple times -- putting up the same pieces for a loan, redeeming them, and later putting them up again.

Second, pawn shops serve consumers who are looking for a good deal on these same products. Because products are bought from sellers at a steep discount, pawn shops can often offer consumer goods for cut-rate prices.

Pawn Shops and Stolen Goods

When property is stolen, it may be sold for profit. Since pawn shops are in the business of buying goods, thieves view them as a potential outlet for the stolen items. The issue of stolen goods at pawn shops is a concern for three parties.

Shoppers want to avoid purchasing stolen goods and becoming involved in any situation such a purchase would create. There are a very low percentage of stolen goods being sold at pawn shops. Pawn brokers adhere to strict requirements that require identification verification and complete descriptions of merchandise.

Stolen property also is a concern for pawn brokers. Brokers stand to lose money should products turn out to be stolen. Local law enforcement would recover the products, and the brokers would lose their investment. The brokers can attempt to get restitution through subsequent court proceedings, but this is not guaranteed . In addition, pawnbrokers who are members of the National Pawnbrokers Association must follow an industry-specific code of ethics that encourages honesty. Because of these reasons, it is in their best interest to avoid stolen property.

The issue of stolen goods is a concern for local law enforcement. Laws may vary by state, and even by county, but some pawn shops must follow special policies and rules to discourage the selling of stolen merchandise. For example, some pawn shops are required to submit lists of their received products to local law enforcement agencies.

How to Sell at a Pawn Shop

Sellers will first want to choose pawn shops that have a good reputation. Speaking with family and friends who have done business with local brokers is a good starting point, but sellers may want to target pawn shops that are members of a state association, such as the Illinois Pawnbrokers Association. Sellers will then need to choose whether they'd like to sell directly to the pawn shop or if they'd like the pawn shop to hold their items for probable return and repayment.

Sellers willing to completely part with items can sell outright. First, the sellers will need to ascertain that the pawn shops accept the items. Some shops may deal only in specific products, such as jewelry. Next, sellers should be careful to arrive only during times when shops are accepting sales. Some shops may not have continuous buying hours. Once at the shop, the pawn shop employees will analyze the products, including likely resale values and how well the items work. Sellers can then choose to accept or reject any offers.

The process for sellers seeking only short-term loans is more complicated. Sellers may choose this option if they are putting up products with sentimental value, such as wedding rings or other pieces of jewelry. Pawn shops give sellers money based on the value of the pieces, but do not put the pieces out for sale. Instead, they are held securely. Then, the sellers have a set amount of time to return and buy back their pieces, usually with an interest amount attached.

Should sellers be unable to buy back their pieces and settle their loans in the prescribed amount of time, there are two options. They can surrender the pieces as payment in full, and the deal is done, or they can possibly take advantage of an extension. This extension would incur additional charges.

The National Pawnbrokers Association indicates that about 80 percent of items left for collateral are redeemed.

The amount of money that pawn shops loan is based on the worth of the item left for collateral, the amount of time during the loan period, and applicable state laws. Amounts can range from $5 to several thousand.

Further Information on Pawn Shops

It is sometimes argued that pawn shops are good for communities because of the short-term help they provide. In addition, they are known to work closely with police on issues of stolen property . At the same time, pawn shops operate mostly in lower-income areas , as do other high-interest loan programs, such as payday lenders. One common complaint against pawn shops is the amount of interest charged. Common rates, when figured out to a yearly cost, can be anywhere from 20 to 210 percent.

Pawn shop affinity groups, such as Pawnshops.net, hold that these high interest rates are needed to securely store collateral and to cover additional operating costs, and that this is simply a cost of doing business.

Pawn shops are highly regulated. They are required to follow federal laws applicable to financial institutions, such as banks. Those that sell firearms must follow regulations set by the Bureau of Alcohol, Tobacco and Firearms. In addition, they must follow both state and local laws and licensing requirements . In fact, some counties do not even allow the establishment of pawn shops within their boundaries.

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