What is a Local Pawn Shop?
Pawn shops are the world’s oldest form of lending. Long before pawn shops even existed, people were lending each other money in exchange for physical collateral. If you needed money thousands of years ago it wasn’t uncommon to use a sheep as collateral for a loan. It is actually only recently that loans are given without a source of collateral. Most loans throughout history have been based on physical collateral. The word pawn is derived from the Latin word pingus which means pledge. When someone pawns something they are pledging it. So in today’s world, what is a local pawn shop?
When an item is pawned, there is a contract between the pawner and the establishment doing the loan, in most cases a pawn shop. It states that within a certain amount of time, the pawner can pay to redeem the loan plus an agreed upon amount of interest. The interest rate is sometimes governed by local authorities or set by the pawn shop itself. If the loan is not paid within the agreed upon amount of time, the pawn shop can list the item for sale. And unlike a traditional lender, pawn shops do not report the loan to credit report companies since the shop takes physical collateral in case the loan defaults. Pawn shops can also buy and sell items directly without giving a loan for them. But how does a local pawn shop work?
The process starts when the potential customer comes into the store with an item. Let’s say for example this customer comes in with a diamond ring. The pawnbroker will asses the value of the ring and find out how much the pawner wants to borrow. If they come to an agreement a contract is made. Then, depending on which state the pawn shop is located, the customer will have a certain amount of time to pay the loan back plus interest. If they don’t pay it back the item can be sold. The pawn shop could also make an offer to buy the item rather than give a collateral loan. If this is the case, the customer will get paid of the item once and the transaction is over. They can no longer come redeem their item.
In order to determine the value of an item, the pawnbroker must consider many factors. First, how much can the item resell for? If the pawner defaults on the loan and the pawn shop must sell it, they have to be able to get their money back, so they need to know the resale value. However, there are a couple types of resale values. One could be how much they think they can sell it to a retail customer and another is how much they can get for it wholesale. If they think they can only sell it wholesale because the retail market is saturated they might want to give you less while another local pawn shop can sell it retail and give you more. The second factor is determining whether they think the customer will pay interest on the loan or not. If the shop thinks you will pay interest on the loan, they may be inclined to lend you more money because they will collect more money in interest. If you look flaky they might not offer you as much. Third, if it is a very sale-able item the pawn shop might want it badly and pay you a lot for it because they know they can move it quickly.
Pawn shops also have to deal with inventory issues. There is a great balance between having too much inventory and too little. If the pawn shop doesn’t have enough inventory no one will want to shop there, if they have too much it can be very time consuming and annoying. There is a middle ground, that if they can find, is great for the shop and consumers. You can find some great deals in your local pawn shop if you look at the right places.