Ok, confess… have you ever been channel surfing in the middle of the night and landed on an episode of the History channel’s hit show, Pawn Stars?
This History channel reality show follows the exploits at the World Famous Gold & Silver Pawn Shop in Las Vegas and plays a bit like a common man’s Antiques Roadshow(PBS). Customers bring in their prized possessions to sell or pawn, items are appraised by either the shop’s employees or a professional appraiser, and then the obligatory haggling over the value and price begins.
If you’re one of the millions who can admit to catching an episode or two, don’t be embarrassed—Pawn Stars became History’s highest-rated series and the second highest-rated reality show on TV last year. Just goes to show how popular the pawn business is in America.
But before you go hauling those boxes of “miscellaneous” tchotchkes down to your local pawn shop, let’s brush up your pawn store knowledge!
Pawn shops are actually in two main businesses:
- The loan business
Pawn shops provide loans that are secured by the item that is pawned. Some have even been known to offer car title pawn loans. Typically, the pawn loan amount will be equal to the resale value of the item less an amount to cover the pawn shop’s expenses and profit margin. Keep in mind that the resale amount is subjective, and some shops will try to low-ball the item. If you decide you want to try pawning something, try to get an objective appraisal before heading into the store, and resist the temptation to disclose to how much you paid or what you think it’s worth. Let them do the talking!
With pawn loans, the store usually keeps the item until the loan is repaid with interest; then, the customer gets their item back. Some pawn shops prefer not to take possession of the pawned item; in this case, the loan amount offered might be lower since the store is not retaining the collateral.
- The second hand retail business
Pawn shops can also buy items outright from customers and resell them in the store or online. Additionally, if a customer does not repay a pawned item loan, the shop keeps the item and can resell it at their discretion. Statistics vary widely on repayment rates, but the Gold & Silver Pawn Shop claims that the rate dropped from 90% to 70% during the recession, and is now hovering around 80%. Statistics for other shops seem to be a little lower.
Some pawn shops also run ancillary businesses such as the sale of new items, check cashing or other financial services. Not surprisingly, the Gold & Silver Pawn Shop is now a tourist attraction, even selling its own brand merchandise! For most stores, gold and silver jewelry are the most commonly pawned items, but tools, musical instruments, sports equipment, guns and collectibles are also common.
Despite how fashionable the Gold & Silver Pawn Shop has become, the pawn industry hasn’t always been received well. Pawn shops have historically taken flack for several reasons:
- Some customers use the money for questionable purposes (gambling, bail, etc.)
- Pawn stores are a frequent target of robberies and heists
- Although their loans are collateralized, pawn shops may still charge high interest rates and fees
As in any industry, there are good companies, who follow the rules and care about their customers, and not-so-good players. So, while the three situations above are real concerns, not all pawn shops are “evil.” Industry regulations have improved over the years, are likely to continue to improve in the future.
Nevertheless, be smart; spend some time researching a few different options, including other types of loans or lines of credit. You may find that you would be better served by an unsecured personal loan or a prepaid credit card. Whatever type of loan you choose, perform a basic background check on the lender. Read through the company’s customer reviews and Better Business Bureau ratings. Familiarize yourself with their rates, terms and fine print. And feel free to “test-drive” their customer service by calling with a couple general questions—this can often tell you a lot about the lender!