How Pawn Shops Work

Sometimes you need a little extra cash and you don’t want everyone to know that you need it.  Rather than asking all your friends or your parents for money, many people rely on pawn shops for a quick temporary loan.  Some people also sell their items since it’s usually quicker than going through the classifieds or online classifieds and dealing with waiting for potential buyers and the actual process of selling an item.  I’ve dealt with many pawn shops over the years and can offer some insight on what to expect.

First of all, you should understand how a pawn works.  You bring in an item of value and the pawn shop loans you some money and keeps your item in their possession until you pay back your loan with interest.  Typically, you get 30 days plus a grace period of 30 days depending on the state laws.  I’ve seen periods from 30 to 90 days so pay close attention on the redemption date and grace period (if any). Also, interest is usually calculated by 30 day periods if you have a 90 day loan, you'll be paying 90 days worth of interest.

As long as you come back and pay off your loan plus interest before the end of the loan period and or grace period (if applicable), you’ll get your item back.  If you don’t come back and pay off your loan in the allotted time, the pawn shop becomes the legal owner of your item and will sell it.  Depending on the state, you may be able to extend the loan by paying off the interest which means you’ll get another 30 days to pay back the principle plus the reapplied interest.  It’s best to pay back your item asap and not roll over your loans. 

Pawn shops will loan money on nearly anything thing of value. Electronics, computers and jewelry are the biggest business.  Things like DVD’s, CD’s, video games will only get you a few dollars each, even if near new.  There is just not much profit margin on these items so pawn shops will not pay anything close to what people expect.  Most pawn shops only accept electronics that are pretty modern.  Very few shops will take a tube TV, only LCD and LED TVs.  Most shops want computers and laptops with Windows 7 or newer.  Video game consoles usually go back 2 generations so you’d be hard pressed to find a place taking PS1 or similar.  Also, some pawn shops will pass on items they already have a large inventory of. 
Many people want to get near retail for their item but that is not how pawn shops work.  In the event that you don’t come back for your item, the pawn shop will need to sell your item in order to recoup the money they loaned you as well as make a profit in order to stay in business.  So the amount of money the pawn shop will loan you is based on the assumption that you will default (not come back). 

If you are getting a loan, generally the pawn shop is going to give you 20% - 33% percent of the current retail value.  For most items including electronics, computers and video game consoles, I like to use the rule of 33% depreciation per year.  This means that if you paid $900 for a laptop a year ago, the used value now would be about $600.  If you bought it two years ago, it would be worth about $400 and so on. 

So, using the $900 laptop that you bought last year as an example, you should expect to get about $150 to $200 for a loan.  That is about 20% to 33% of $600 which is 66% of the original value.  I know, it’s a lot of numbers, but just remember, 33% off the original value and 20% to 33% of the remaining value.  However, a huge factor is the condition of your item and if all of the accessories (if applicable) are present.  If your laptop is all scratched up, missing parts, then expect a lot less or they may even pass.  Just think about what you look for when you buy a used item.  Would you want to buy something that is all scratched, dirty and missing parts?  Probably not.  So the pawn shops try to get the best products as possible 

Here are some tips for pawning your items:

1. Know what to expect before you go in.  If your item is worth $1000 bucks, the pawn shop is not going to loan you $1000 bucks.  Knock off 33% of original value per year and then expect 20% to 33% of the current value for items of good condition.  If your item is in poor condition or missing parts, expect a lot less. 
2. Clean your items before you go in.  Make sure you don’t damage your items so use proper cleaning products.  Make sure you bring any accessories, chargers, cables, caps, covers or basically everything that originally came with the item.  Having the original box is a plus but if your item looks TOO new, be prepared to present an original purchase receipt. 
3. Bring your ID.  This is state law. 
4. Don’t be afraid to negotiate but be realistic.  Pawn shops will start low in order to maximize their profit potential.
5. Do not pawn something unless you are 100% positive that you will be able to come back and pay off your loan.  Otherwise, you should just sell the item.
6. Keep your pawn ticket safe as you would cash.  Depending on your state, a pawn ticket can be a bearer instrument which means whoever is in possession of the ticket can redeem the item.   Most pawn shops will charge a fee for lost tickets.  If you lose your ticket, contact the pawn shop immediately.
7. If you can’t pay off your entire loan on time, go in and pay the interest and at least you can get more time to pay it off. 
8. Don’t pawn items that you can’t afford to lose, like your family heirloom jewelry.
9. Don’t sell items that have collectible value.  Many people watch shows like Pawn Stars or whatnot and I just laugh.  Most pawn shops do not deal with antiques and collectibles anyhow.  If your have a valuable baseball card, you should go to a sports collectible shop.  If you have a huge diamond, you should go to a reputable jewelry store. 
10. Use pawn shop loans responsibly.  Again, if you’re not sure if you’ll be able to come back and pay off your item, you should not pawn as you will likely lose the item.

In general, if you do want to sell an item, you should go through the traditional route of classified ads whether through the newspaper or online.  You will be likely to get more than from a pawn shop but it can take longer.  If you sell an item out right to a pawn shop, you can expect 20% to 50% depending on how new and the condition of the item. 

While pawn shops can have seedy reputations, most are on the level and just trying to operate a business but you need to be realistic with what a pawn shop can do for you.

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