Pawn Shops: What You Need to Know
Pawn shops were once thought of as a last resort for consumers experiencing cash flow issues. But with the popularity of reality shows such as Pawn Stars, going to a pawn shop has become more mainstream. Still, these shows, where unsuspecting consumers sometimes score huge cash windfalls, tell only a part of the story. Here are several things you should know about pawn shops.
Pawn Shops Are Regulated
Pawn shops are subject to a uniform set of federal regulations and statutes. In addition, state and local laws also apply to ensure pawn shops conduct business responsibly. Before choosing a pawn shop, be sure they are registered with the National Pawnbrokers Association (NPA), and check with your local Better Business Bureau to see if there are any complaints against them.
You Can Only Pawn What You Own
One of the main reasons pawn shops gained a bad rap was their reputation as a haven for unloading stolen goods. Part of the process of pawning something is answering in-depth questions about the item you’re pawning to prove you’re the rightful owner. You will also need to show a government-issued I.D.
There are Two Ways to Get Money
The transactions you see on the pawn TV shows are generally straightforward. Someone brings in an item, and the pawn shop makes a cash offer to buy it on the spot. End of transaction. But that’s just one type of pawn transaction. The other, and more common scenario, is to receive a collateral-based loan. Here’s how it works:
- A consumer brings an item of value to the pawn shop.
- The pawnbroker evaluates the item and offers a loan amount, which will be less than the item’s total value.
- The consumer receives a pawn ticket, which includes a description of the item and the terms of the loan, including fees, finance charges, and the date the payment is due in full (usually from one to four months).
- If the consumer does not pay in full by the due date, they forfeit ownership of the item and the pawnbroker sells it to recover the loan amount.
Things to Remember
Unlike other short-term lending options, not paying back a pawn loan has no negative effect on your credit. Since the loan was secured with collateral, once you forfeit ownership of that collateral, the loan is considered paid in full. However, you have to be OK with the thought of losing that item forever, so never pawn something you can’t picture yourself living without.
If you find yourself frequently needing short-term loans to make ends meet, we can help you work out a realistic budget based on your current income. It’s easy to get started with free Credit Counseling.