How Pawn Shops Work

pawn shop can be referred to as a business that offers secured loans to people, with items of personal property used as collateral. The items are pledged to a broker. The items used collateral in pawnshops may include jewelry, home audio equipment, coins, firearms, computers, cameras, video games systems, power tools, and musical instruments. If you need money for something more than a short-time issue, you can visit a pawnbroker or pawnshops such as Monte de Piedad. Pawnshops are governed by regulations, laws, and federal statutes.

The pawnshop is legally obligated to confirm that you are the legal owner of the item. The identification helps to resolve the risk that the item might have been stolen. Pawnshops must give a list of all newly pawned items to the police. To counter counterfeit goods, pawnshop scrutinizes the marketability and condition of the item by examining its scratches, flaws, and damage. For items that are hard-to-sell the pawnshop offers a low price.

Factors of Loan Calculation

The resale value of the item: This entails low and high range. The low range determines if the wholesale option is workable. The higher point is the retail sale price in the pawnshop. The wholesaler pays a lower price compared to retail pawnshop customers.

Demand and supply for the item: The pawnshop determines if the market of the item is saturated. The broker calculates overhead costs plus profit revenues.

The ability of the pawnshop customer to pay interest: The pawnshop assesses the likelihood that the customer will pay the interest for several weeks then return to repay the loan and reclaim the item.

Saleability of the item and the amount that the customer wants: If the customer offers a very salable item at a low price, the pawnbroker may accept the item but if the customer offers an extremely low price the pawnbroker may turn down the offer as it suggests it may be counterfeit or stolen.

Transaction and Repayment Procedure

A pawn shop loan is secured by something that the pawnbroker values. You can sell your item to the pawnshop outright. The pawnbroker keeps your item until you repay the loan. The amount of loan granted is a small fraction of the item’s actual value.

You receive a pawn ticket upon giving a valuable item. The receipt summarizes the terms of your loan including a description of your item, expiration date, and fees.

Avoid default repayment. Return the loan plus added fees before the deadline. The repayment is usually 1 to 4 months after the initial transaction.

If you fail to return the loan, the pawnshop keeps your item with no overdue charges of collection action and no effect on your credit report. In some instances, you can extend the loan period by a few months but you will incur additional charges.

The pawnshop should explain and indicate on your pawn ticket all fees involved in your loan before you finalize the transaction.

Managing Inventory

Pawnshops need to be careful when accepting new pawns. Additional sorting and shelving are important to display quality items. Small but high-value items such as smartphones must be locked in glass display cases. Supervision through security cameras in different areas is essential to avoid theft.

A pawnshop store with a moderate amount of good quality, brand name, and neat item display highly attracts walk-ins and passersby. Clammed stores tend to look like rummage. Too much unsold inventory means that the store has not benefited in terms of value from items.

To slim down inventories, you may narrow down to selling items to specialty retailers.


Don’t offer anything that is cheaply made, outdated or difficult to store. It’s recommended to use jewelry or coins.


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