Have you ever been to a pawnshop? For a lot of people, there seems to be something, well, shady about these places. But if you haven't been to a pawnshop, you may be missing out on some great bargains. A pawnshop is a lot like a dozen garage sales and a flea market all rolled into one. Pawnshops also play an important role in many communities by providing people with an easy, fast way to borrow money.
There are three things that happen in any pawnshop hundreds of times every day:
- People borrow money by putting up something they own as collateral.
- People sell used merchandise.
- People buy new and used merchandise.
What's the Deal?
Pawnshops and pawn broking have been around for thousands of years. The basic idea behind any pawnshop is to loan people money. It goes like this:
- You bring in something you own and give it to the pawnbroker as collateral for a loan (this act is called pawning).
- The pawnbroker loans you money against that collateral.
- When you repay the loan plus the interest, you get your collateral back.
- If you don't repay the loan plus interest and service charge, the pawnbroker keeps the collateral.
Is This Information Correct?
Pawnshops are regulated at the state level in the United States, and every state has different rules. Some of the details are absolutely fascinating! As an example, let's take a look at how a pawnshop works in the state of North Carolina.
Pawnshops are a business just like any other. But unlike many other businesses, pawnshops have a special set of laws that keep them on the straight and narrow. Pawnshops are specially licensed, and it turns out that they have to cooperate with police on a daily basis to prevent the movement of stolen merchandise.
When you pawn an item, the pawnbroker takes your name and address, verifies it with your valid driver's license and then inspects the item carefully. Most pawnshops have the ability to test diamonds and gold for authenticity. If you are bringing in something like a TV or VCR, the pawnbroker tests it to make sure it works properly. If there is a serial number on the item, it's also recorded on the pawn ticket. In the next section we'll examine the reasons a pawnshop must complete paper work on each item.
As we mentioned in the last section a pawn shop must complete a lot of paper work for each item they acquire. There are three reasons for this level of scrutiny:
- Every day, the pawnbroker must submit a list of all merchandise received, including serial numbers, to the police. The police compare the serial numbers against records of stolen merchandise. Anything stolen is recovered this way and returned to the owner. Why do they do this? If a stolen item is found in a pawnshop and the item was not reported to the police by the pawnshop when it came in, the pawnbroker can be charged with receiving stolen merchandise.
- A typical item pawned at a pawnshop has about a 60-percent chance of being reclaimed by the person who pawned it. This means there's about a 40-percent chance that the pawnbroker will have to sell the item to recover the loan, so the item must be in a condition to be resold.
- Unlike someone running a garage sale or a booth at a flea market, a pawnbroker is running a stable business in the community and has to worry about his or her reputation. A pawnbroker cannot sell junk.
When you walk into a pawnshop, you are really seeing only half of the operation. The actual shop is twice as big as the part you walk around in. The unseen part is the storage area for all of the items in pawn. Let's say that you pawn your TV -- the pawnshop has to hold it for a amount of days.
When the economy is down, lots of people are pawning things and not many people are buying. This helps to explain the high interest rates to some extent. The pawnbroker has real cash going out the door when he makes a loan, but has only the used merchandise to sell to recover that money if the loan is not repaid. Used merchandise is not the Rock of Gibraltar when it comes to investment vehicles.
Because many of the people never pick up the items they pawn, a pawnshop is a consumer store as much as it is a lending institution. People also come in and sell used items outright to the pawnshop.
This makes any pawnshop a huge, daily garage sale! Some of the things you typically find in a pawnshop include:
- Lawn equipment
- Sporting goods
- Musical instruments
A pawnshop is a great place to buy jewelry ! You generally pay about half the retail value. Worried about authenticity? Bring an appraiser with you. Since jewelry is often the most valuable thing a person owns, it is one of the most commonly pawned items.
You will also find random things you might not expect to see at a pawnshop -- saddles, for example. And wheel chairs, motorcycle leather, bicycles...
As defined by the North Carolina General Statutes, 91A-3:*
· Pawnbroker - Any person engaged in the business of lending money on the security of pledged goods and who may also purchase merchandise for resale from dealers and traders
· Pawnshop - The location at which, or premises in which, a pawnbroker regularly conducts business
· Pawn or Pawn transaction - A written bailment of personal property as security for a debt, redeemable on certain terms within 180 days, unless renewed, and with an implied power of sale on default