Pawn 101

While Pawn loans are incredibly popular, and every town has its fair share of Pawn shops, many people do not understand the basic fundamentals of how these businesses operate, and what they do. We're here to fix that. In the following posts we're going to talk about what Pawn Shops do, how they operate, and their impact and benefit to the community.

How does "pawning" work?

Pawnbrokers offer low interest, short-term, cash loans based on collateral rather than credit score. This collateral, or pledge is the personal property of the customer. This is generally anything of value such as:

• Jewelry & Watches
• Electronics
• Computers
• Smart Phones
• Audio Equiptment
• Video Game Systems
• TVs
• Musical Instruments
• Collectables  (coins, comic books, action figures)
• Antiques
• Power Tools
• Lawn Equipment
• Vehicles

Basically anything with high resale value.  The pawnbroker inspects the item, determines its re-sale value, and then gives a loan amount based on that number. With precious metals such as gold and silver, the item is tested for purity, and weighed.

The customer then has a period of time to pay the loan back plus interest. At Morrisville Gold & Pawn/Mega Pawn, our standard rate is 6% interest for a loan period of two months. Once the loan is payed off, the pledged item is returned to the owner.

What happens if I don't pay back my loan in time?

The customer always has the option to just pay their interest and extend the loan for an additional period of time. However, if a customer defaults on their loan, the Pawnbroker simply keeps the collateral. There is no effect on the customer's credit score and the only repercussion is that they lose whatever item they pledged in exchange for the Loan.  

What happens to collateral pledges that the Pawnbroker Keeps?

The whole point of putting up collateral in the first place is so that the Pawnbroker can reclaim money lost if the loan is not repaid. If a customer defaults, and the Pawnbroker keeps the item, it will then be sold by the Pawnbroker at a discount price. Items are sold either in store or online.  If a customer lost their item, they can buy it back from the store (albeit at a slightly higher price than they were given a loan for).

Pawn Loans are a great option for people who need cash loans, don't want to pay much interest, and don't have the credit to get a bank loan. In the next post we'll discuss more benefits to the the Pawning, as well as the impact of Pawnbrokers on the community.