What Is a Pawn Shop?

Pawn shops provide short-term loans to people for items held as collateral. They also buy items outright from people wanting quick money. Typically these shops offer half or less of what the item in question currently sells for, using data on current market value for precious metals, and online sales for electronics and other goods.

Definitions

A pawnbroker is a person who makes secure loans, meaning loans for collateral. The action of borrowing the money is called pawning, and a pawn shop is the location where this activity takes place.

Repayment

When the borrower repays the loan plus the interest, the collateral is returned. If the person doesn't repay the loan, the pawnbroker puts the item up for sale, or can sell jewelry for cash to scrap-metal buyers.

Time Frame

Depending on the state and the particular business, loans are written for time frames of 30 to 180 days, typically with a 30-day grace period before the pawn shop is allowed to sell the item. Loans can be rewritten any number of times.

Interest

Interest can be very high, over 200 percent a year, although some states mandate more reasonable rates.

Function

Pawn shops typically provide the only way to commercially borrow under $100. Pawn shops also loan higher amounts to people unable to receive bank loans because of poor credit, or to those who do not have access to a credit card.

Resources

• United States Congress proposes federal regulation of pawn shop interest rates.