If you’re hooked on watching one of the hottest reality television shows on cable television, Pawn Stars, you’re not alone. Pawn Stars debuted in 2009 and is one of the most-watched shows on cable TV today. The show features a family-owned pawn shop business, constantly approached by a variety of real-life characters bringing their personal treasures and hoping to cash in on their prized possession.
The intrigue happens when a customer brings in items that touch on pop culture or historical figures, such as a letter signed by Abraham Lincoln himself. What’s it worth? Is it real? And if so, how much will it sell for? Will they bring in a handwriting expert? Will the owner sell it or pawn it?
But, exactly what does it mean to pawn something? And where did the idea of pawn shops come from?
Pawn shops have been an integral part of America’s lending and borrowing landscape since the 1820s. But there is evidence of pawn brokering as far back as 3,000 years, spanning across ancient China to the early Greek civilizations.
In its earliest and simplest form, a pawn borrower who needed financial assistance could pledge an item of value to an individual making the loan. Once the loan was repaid, the item was returned to the borrower. That is the core of pawn loans.
In the United States, pawn shops began to flourish during the mid-1800s and early 1900s and were one of the most common forms of consumer finance at the time. Borrowers who were short of cash or who needed emergency funds brought in personal items of value to the pawn shop and pledged that item as collateral for a short-term loan.
For most pawn shops, the core business is to make short-term, secured loans to consumers. The collateral used to secure the loan is an item that can be appraised either by an independent third party or by the pawn shop itself. Once the value of the asset is established, the pawn shop can buy the item directly from the consumer or make a short-term loan based upon the value of the pawned item.
The collateral used for a pawn loan is movable, meaning the asset will physically be held at the pawn shop’s location and returned to the borrower when the loan is paid in full. If the borrower repays the pawn loan, they get their collateral back. Some pawn shops also offer loans on fully owned cars, in the form of auto pawn or car title loans. Depending on the loan agreement, the lender would either hold the title to the car (but let the borrower keep driving it) or keep the car entirely until the loan is paid off.
If the loan is not paid in full within the allotted time, the borrower will default on the loan. After a default, the pawn shop can declare the asset as their own and place it for sale in their shop. Consequently, pawn shops have become more than lenders.
Today, consumers visit a pawn shop to obtain financing, sell their items and buy a variety of goods from musical instruments and power tools to electronics and jewelry. Pawn shops have become a fixture in America.
But they’re not recommended for everyone. Before you consider pawning your personal possessions for a pawn loan, it’s important to consider all your credit options, from credit cards or unsecured installment loans to selling items outright on eBay or speaking a credit counselor.