Pawn shops let you use a valuable item to get a short-term loan based on that item’s value. You give your item to the pawn shop (or “pawn” it), get cash, and then get your item back when you repay the loan. You can also choose to sell your item outright to the pawn shop.
This complete guide will answer the question: How do pawn shops work? Keep reading to learn everything you need to know before visiting a pawn shop.
Need cash but don’t want to sell your valuables? Consider getting a paycheck advance instead with MoneyLion Instacash®.
Table of contents
What is a pawn shop?
A pawn shop is a business that offers short-term loans using valuable items as collateral.
It’s a straightforward trade: You bring something valuable and swap it for cash. You can either get a loan for your item if you eventually want to get your item back, or just sell your item outright and walk away with cash
Pawn shops play an important role in local communities by helping people get cash quickly.
For example, if you need $100 to make ends meet before your next weekly paycheck, a traditional bank probably won’t help. They usually don’t offer loans that small. But a pawn shop can step in to bridge that gap, offering access to cash with a fast approval process.
Pawn shops also double as mini flea markets. They usually resell most of the items that people sell to them, so you can typically find some great deals on second-hand goods.
How does pawning work? 4 simple steps
So how does pawning work? It varies based on the shop, but most pawn shops follow a simple 4-step process.
Step #1: Choose an item to pawn
The first step is to find a valuable item that you can pawn. Common examples include jewelry, electronics, or tools. This item can be just about anything, as long as it has monetary value.
Once you’ve got an item, bring it to the pawnshop, where the staff will evaluate its condition and resale value.
Step #2: Get an appraisal or pawn shop loan offer
The pawnbroker will assess the value of your item (known as an appraisal) and then give you two options:
- You can get a loan for the value of your item
- You can sell the item outright
Pawn shop loans are usually between 25% and 60% of the item’s appraised value. So if your item is worth $200, then you’ll likely get a loan of between $50 and $120.
Step #3: Get your cash and sign an agreement
If you accept the loan, then it’s time to get your cash and sign some paperwork. Here’s what usually happens:
- Sign an agreement: You’ll sign a contract outlining the loan amount, interest rate, and repayment date.
- Hand over your item: The pawn shop retains possession of the item until the loan is repaid.
- Receive your cash and ticket: You’ll receive cash immediately, with no credit check required. You also get a pawn ticket or receipt, which is essential for reclaiming the item
From there, the pawn shop will hold onto your item in secure storage, and you’ll be free to spend your cash as needed.
Step #4: Repay your loan or forfeit your item
You can get your item back at any time by repaying the loan plus interest. If you don’t pay back within the agreed-upon timeframe, then the pawnshop gets to keep the item.
How to prepare your items for pawn
Want to learn how to pawn something? Here are a few steps that you should take before visiting a local pawn shop.
Clean your item
Your first step should be to clean and repair your item, if necessary. You can clean most items at home, but some may require a professional. Cleaning your item before visiting the pawn shop makes it more attractive, so you have a better chance of earning top dollar.
Understand your item’s worth
Pawn shop loans are definitely negotiable.
👉 Your goal? To get as much money as possible for your item.
👉 The pawn shop’s goal? To pay as little as possible for your item.
You can set yourself up for success by researching your item’s value ahead of time, so you know if the pawnbroker is offering you a fair deal or not.
At a minimum, you’ll want to do some online research. For more expensive items, it might be worth getting a professional appraisal.
Once you establish a value, the pawn shop will likely offer between 25% to 60% of the item’s value.
Brace for red tape
Pawn shops can be a hub for people trying to sell stolen goods. For this reason, pawn shops are legally obligated to keep extensive records of all transactions, so they can report them to the police if necessary.
Be prepared to show government-issued ID when selling to a pawn shop. You might also need to show proof that you own your item. This isn’t always required, but it can help make the process smoother.
How pawn shops make money
Pawn shops make money in 3 main ways:
- Charging interest on loans: Pawn shops primarily make revenue from the interest they charge on loans, similar to a bank. Pawn shop loans are known for charging very high interest rates.
- Reselling items: Pawn shops also sell forfeited collateral or items purchased outright at a higher price than they bought them for.
- Additional services: Shops might also offer services like check cashing or money transfers, which can help bring in additional revenue.
Pawn shop pros, cons, and risks for borrowers
Pawn shops offer a valuable way to get access to cash quickly. But they also come with several significant costs and risks to be aware of. The main risk is the sky-high interest, which can be over 200% annually in some states.
Let’s examine the pros and cons in more detail 👇
| Pros of pawn shops | Cons of pawn shops |
Fast access to cash: You can get cash the same day without a long approval process. | High interest rates: Monthly interest rates on pawn shop loans can range from 10% to 25% per month, which is very high compared to other loans. |
No credit check required: Loans are granted based on your collateral, not your credit score. | Small loan amounts: Pawn shop loans usually only cover about 25%-60% of the item’s resale value, so you only get a fraction of the item’s actual value. |
No impact on credit score: Not repaying your loan won’t hurt your credit or trigger debt collectors. | Risk of losing valuables: Failure to repay means the pawn shop keeps and sells your item permanently. |
No legal obligation to repay: You can walk away from the loan without legal consequences. You just lose your collateral. | Short repayment terms: You typically only get 30-90 days to repay, which is a tight timeline to repay, especially if you’re low on cash. |
8 smarter alternatives to pawn shops
Pawn shops can be valuable for getting cash when you need it. But they’re also expensive.
Here are 8 smarter alternatives to pawn shop loans:
🔄 Sell your items online: You’ll likely get closer to your item’s full value if you sell it on a platform like Facebook Marketplace, Craigslist, eBay, or OfferUp. Since these sites cut out the middleman, you’ll often earn double or triple what you’d earn when selling to a pawn shop, especially for electronics, tools, or collectibles.
🔄 Take out a low-interest personal loan: Personal loans typically come with much lower interest rates than pawn shop loans and don’t require you to hand over your belongings. With a steady income and fair credit, you could borrow what you need and pay it back in manageable monthly installments.
🔄 Download a cash advance app: Tools like MoneyLion’s Instacash® let you access a portion of your upcoming paycheck with no interest or credit check. It’s a fast, safe way to get access to your cash without risking your valuables or paying a steep pawn shop interest rate.
🔄 Explore emergency assistance programs: Local nonprofits and government programs can sometimes help cover rent, utilities, or medical bills. They won’t just give you cash, but they can help you cover crucial expenses.
🔄 Take out a credit card cash advance: Cash advances tend to offer more protection and transparency than pawn shop loans. You’ll know exactly what you owe, and you won’t risk losing something important if you can’t repay right away.
🔄 Consider a side hustle that offers weekly pay: Picking up gig work can help you earn steady cash without giving up assets. There are plenty of gigs that can help you earn $500 in a week.
👉 How to Make More Money in 2025: 24 Ways
Pawn Shop Loans: An Expensive Way to Get Cash Quickly
Pawn shops can offer fast cash in a pinch, but that convenience comes at a steep cost. Between high interest rates, short repayment windows, and the risk of losing valuable possessions, pawning should usually be viewed as a last resort.
Before putting your belongings at risk, consider safe options like low-interest personal loans, cash advance apps such as MoneyLion Instacash®, or even temporary side hustles that offer weekly pay.
If you’re considering selling to a pawn shop, be sure to look at the pawn shop’s reviews online and double-check that its license is up-to-date before visiting.
FAQs
What percentage does a pawn shop give you?
Pawn shops typically offer around 25% to 60% of an item’s resale value, depending on its condition, demand, and how easy it is to sell.
What happens when you pawn something and don’t pick it up?
If you don’t repay the loan by the due date, the pawn shop keeps your item and can sell it to recover the money they lost.
How does pawning work?
Pawning means using an item as collateral to get a short-term loan from a pawn shop. You get your item back once you repay the loan plus fees.
Do pawn shops buy anything?
Pawn shops don’t buy just anything. They only buy items of value that they can resell, like jewelry, electronics, tools, and collectibles.
How long do pawn shops hold items before selling?
Most pawn shops hold items for 30 to 90 days, depending on local laws and store policy.
Do pawn shops do trades?
Yes, many pawn shops allow trades, meaning you can swap an item you own for another of similar value instead of buying or selling outright.
