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Pawn Shops and Loans

What is a pawn loan? Simply put, it’s a loan disbursed by a pledgor based on the value of a collateral item provided by the creditor. In even simpler terms, you bring an item to a pawn shop, they loan you money against the item. That item is held in a secure location until you pay back the loan along with any interest accrued. However, if the loan expires, the item is forfeited to the pawn shop and they can do anything they want with it. Generally, the items are put out onto the sales floor or in displays and those become the deals you encounter in pawn shops. How is the pawn amount determined? Every shop has a different methodology, but it all boils down to getting the item for a low enough price where an acceptable profit can be made by the shop but not so low it dissuades the customer from parting with the item. What we use is eBay, it keeps track of listings that have actually sold and each listing has a unique photo so we can adjust the price fairly based on condition. It’s important to go off of what has actually moved on the market, anybody can create a listing for any price, no matter how ridiculous. Once the price is agreed upon, there’s a small amount of paperwork to be done. The specific rules vary state to state and each pawn shop must follow those rules to maintain a pawn license. For example, in Ohio, a pawn loan’s interest charge is 6% of the loan amount plus a $6 storage fee. The term of the loan is 120 days with interest being charged every 30 days. Every time that interest charge is paid, it adds 30 days onto the term of the loan. That means you can keep an item in pawn indefinitely but it is not recommended at all. If you can’t pay off the entire loan, you can also pay beyond the interest charge(s) to lower the principal of the loan. These rules are different for each state and you can find the applicable regulations on your state’s website.

An alternative to pawning an item is to just sell it outright. This doesn’t even deserve its own paragraph but I’ll do it so you don’t accidentally skip over it. Generally, selling an item will get you a higher price as the used market price likely won’t move too much over the course of 15 days vs the 120 days minimum for a pawn.

Pawn shops are a great resource for bargains and for getting a quick loan if you need cash immediately, but there are some risks involved. Responsible shops do all they can to mitigate these risks. One major concern people have is possibly buying stolen merchandise. Personally, we use LeadsOnline to make sure any stolen items we inadvertently take in get returned to their rightful owners. Every item with a serial number has it logged and we upload our intake list on a regular schedule to LeadsOnline. LeadsOnline has a database of all items taken in by pawn shops which gets cross referenced with police reports. If a serial number, item description, or pledgor’s name matches with one that’s in a police report, the shop and police are notified immediately and the item is flagged to be held. On top of all this record keeping, we hold all purchased items for 15 days to give all parties ample time to follow due process.

Another concern you might hear people voicing is purchasing counterfeit or non-authentic items. I can’t speak for every shop, but we are constantly educating ourselves to better identify counterfeit items. In Ohio, pawnshop managers must undergo mandatory continuing education every year to maintain a pawn license. These classes almost always devote some time to counterfeit identification so each pawn shop should have a good working knowledge of high end luxury items. Along with these continuing education classes, there are several resources online anyone can use to learn how to identify counterfeit items.