How Do Pawn Shops Work?

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how do pawn shops work

If you’re looking for an alternative to predatory online payday loans, pawning valuables can provide some quick cash. But pawn shops enter every transaction hoping to make money – meaning they’ll act in their best interest first. That’s why we’re answering some crucial questions about how do pawn shops work, like: 

  • What is pawning? 
  • What is a pawn shop loan, and how is it different from a sale?
  • How should you prepare your items?
  • What will pawn shops pay most for?
  • And more!

What is a pawn shop?

Pawn shops are essentially second-hand stores that both purchase and offer collateral-based loans for items. You, as the borrower or seller, bring in valuables and receive money in exchange. In case of a sale or default, the pawnshop then resells your item to make a profit. 

Pawn shops often get a bad rap thanks to negative movie and media portrayals. But pawn shops are regulated by 14 federal statutes plus state-specific laws, meaning that most shops are clean and well-run. That said, if you want to check a pawn shop’s legitimacy, you can search its name on the National Pawnbrokers Association.

How pawn shops make money

Many pawn shops make the bulk of their money by collecting interest and fees on secured personal loans–more on those below!

These shops also make money reselling items that they buy or repossess if you default on your loan. And some provide other services, such as cell phone activations and money transfers. 

What is a pawn shop loan?

A pawn shop loan is a secured, quick cash loan that pawn shops give in exchange for holding onto collateral, such as a television, jewelry, or musical instrument. Each loan comes with:

  • A term length (when you have to repay your loan), typically around 30-45 days
  • An interest rate, which can range from 5-35% APR depending on the state
  • “Service charges” (a percentage-based charge some pawn shops use to get around interest caps)

If you bring in an item and agree to a loan, the pawn shop will give you a pawn slip detailing your loan terms. If you make your payment before the term is up, you’ll get your collateral back. If you don’t, the pawn shop will consider you in default and sell your item.  

But you shouldn’t have to part with valuables just to make ends meet. Instead, consider a Credit Builder loan from MoneyLion. Every loan comes with competitive interest rates, monthly credit reporting, and Lion’s Share perks that pawn shops can’t match!

How to prepare your item for pawn

If you’re in the market for a pawn shop loan, it’s important to know how to get the most value for your loan (or sale). 

Clean your item 

Your first step should be to clean and perhaps repair your item. If you can do this at home, you can save some money. But if the item is fragile or requires special cleaning, you might consider a professional service. 

Be prepared to prove your claims

Pawn shops want to make money, which means buying low and selling high. To avoid being lowballed, you can research your item’s value ahead of time. For instance, you might take jewelry, coins, and other valuables for an appraisal. You can also look at current market trends for similar items in used condition. 

Negotiate on price

Armed with your research on the value of your item, you may be able to negotiate for a higher price than the broker offers. But be sure you can back up your claims – such as with proof of your research or a professional appraisal. 

Brace for red tape

Pawnbrokers are legally obligated to make sure that you own the item to avoid buying stolen goods. As such, you might try to provide receipts or other proof of your ownership. (If you don’t have a receipt, that’s okay, but they may ask questions to confirm legitimacy.) You’ll also need to provide a government-issued ID to legally pawn your item. 

Advantages of pawn shop businesses

Pawning or selling items can put cash in your pocket – but that’s not their only benefit. 

  • Safer (and less expensive) than payday loans
  • No hard credit checks
  • Pawn shops don’t report defaults to the credit bureaus
  • Get cash same-day – usually within an hour

Disadvantages of pawn shop businesses

But pawn shops aren’t all good news – there’s plenty to be wary of, as well. 

  • Higher interest rates than standard loans
  • Additional fees and “service charges” increase your loan cost
  • Must be repaid in one lump sum
  • Short terms (often around one month) make it difficult to repay your loan
  • You risk losing your property if you can’t repay 

10 things you can sell at a pawn shop

If you’re looking for ways to make money, selling items to a pawn shop can net you a hefty amount of quick cash. But first, it’s important to know: what will pawn shops pay most for? 

  • Jewelry and precious metals like gold and silver
  • Valuable coins
  • Smart devices such as phones and watches
  • Other electronics, including gaming systems and TVs
  • Power tools
  • Musical instruments
  • Firearms
  • Sports and pop culture memorabilia
  • Sports equipment 
  • Games, movies, and books (depending on the shop)
  • Vehicles such as cars, trucks, scooters, ATVs, motorcycles (depending on the shop)

Try an Instacash advance instead of a pawn shop loan

Pawning valuables, antiques, and even everyday sports equipment can net you a decent chunk of change if you know how a pawn shop works. But instead of loaning (or selling) stuff you might want in the future, you could take out an Instacash advance from MoneyLion. 

With a linked checking account and consistent direct deposits, you may qualify for up to $1,000 in interest-free cash advances anytime you need it – with no hard credit check required!


What percentage does a pawn shop give you?

Pawn shops may lend anywhere from 25-75% of an item’s resale value.

What happens if you pawn something and don’t pick it up?

The broker considers your loan in default and repossesses your item for resale.

What does pawning mean?

When you pawn an item, you use it as collateral against a short-term loan. If you repay the loan plus interest, you get your item back.

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