How Pawn Shops Work

Popular shows like Pawn Stars and Hardcore Pawn have brought new attention to the pawn industry. If these shows or even the poor economy have you wondering how pawn shops work, then read on for an explanation of how modern pawn shops operate.

Pawning

Pawn shops obviously get their name from the act of pawning. The definition of pawning is this: to deposit as security, as for money borrowed. Though most pawn shows focus on the buying and selling that happens at a pawn shop, these stores were originally created as an alternative means of credit for people that needed cash fast but could not get a traditional bank loan. Pawn shop customers bring in an item of value and use it as collateral to get a short-term loan from the shop. If they do not repay their loan within a certain number of days, then the shop takes possession of their item and their debt is cleared.

Buying

These days pawn shops do a lot more buying than pawning. They are an especially popular way for people to scrap their gold and other precious metals. Because the focus of the shop is on giving fast cash, the prices they offer on goods are usually significantly below retail value. To avoid buying stolen items, most pawn shops require people selling items to provide proof of identification and to fill out a bill of sale.

Selling

Obviously the pawn shops make their money by selling both the items they buy outright as well as the items they receive through defaulted pawn deals. While these items are marked up significantly from what the shop itself paid for them, they are still usually priced at significantly less than retail value.

Get a new appreciation for the respectable history of pawn shops as well as for their very simple business plan.