Frequently Asked Questions
Question: How does a pawnshop work?
Response: Pawnbrokers lend money on items of value ranging from gold and diamond jewelry to musical instruments, televisions, tools, household items, etc. These items maintain their value over a reasonable period of time and are easy to store, especially jewelry. All customers provide collateral, eliminating the need to distinguish high risk from low risk borrowers. Typically, loans are small averaging between $70 and $100, although they can be as small as $5 or as high as several thousand dollars depending on the value of the collateral. Contracts vary from state to state, but the average loan period is 60 days. Generally, interest rates will vary with the amount of the loan. The process is much the same as any other lending institution, with the primary difference being the size of the loan, the collateral and the holding of the merchandise until the interest or the loan has been repaid.
Question: Why would someone go to a pawnshop to get a loan?
Response: Pawnshops offer the consumer a quick, convenient and confidential way to borrow money. A short-term cash need can be met with no credit check or legal consequences if the loan is not repaid. A customer receives a percentage of the value the broker believes the collateral would bring in a sale. Although the loan-to-collateral ratio varies over time and across pawnshops, a loan of about 50 percent of the resale value of the collateral is typical. In other words, pawnbrokers feel their loan is "paid in full" at the time it is made. When a customer pawns an item, the terms of the loan are printed on a pawn ticket that is given to the customer. The ticket states the customer's name, address, type of identification provided to the pawnbroker, a description of the item, amount lent, maturity date, interest rate and amount that must be paid to redeem the item. Most states regulate pawnshop interest rates and other charges, such as storage or insurance fees.
Question: What is the foreclosure procedure?
Response: If a customer defaults, the collateral becomes the property of the pawnshop after the loan is overdue by a specific amount of time, generally one to two months. Most states require the broker to notify by mail the owner a pledge that he will loose the right to his property unless he redeems it within the stipulated grace period.
Question: Do most pawning customers lose their merchandise?
Response: On average, 70 to 80 percent of all loans are repaid. Repeat customers make up most of our business, similar to any other lending or retail establishment. Pawnbrokers know the vast majority of their customers because they often borrow against the same items over and over again. Pawnbrokers offer non-recourse loans, looking only to the item being pledged to recover their investment if the borrower chooses not to repay the loan. It is solely the choice of the customer whether he/she elects to repay the loan.
Question: How can I be sure the merchandise I purchase at a
pawnshop isn't stolen?
Response: Less than one tenth of one percent of all loans are identified as stolen goods. Thieves and robbers are a pawnbroker?s worst enemy. Pawnbrokers work closely with local law enforcement to catch and prosecute these perpetrators. A customer must provide positive identification to show evidence of the transaction. This information is then presented to the police department, therefore decreasing the likelihood that a thief would bring stolen merchandise to a pawnshop. Pawnbrokers are trained to look for signs of stolen property to avoid these costly mistakes. It is not in the interests of the pawnbroker to accept potentially stolen merchandise because the police can seize the merchandise and the pawnshop owner loses the collateral and the loaned money.
Question: What is the difference between buying at a pawnshop
and buying at a retail store?
Response: Mainly price. Pawnshops can offer you merchandise ranging from 1/3 or 1/5 off retail prices.
Question: Why is the image of pawn broking changing since
Response: Today's pawnbroker is upgrading everything from the interior and exterior of his or her shop location, employee presentation, customer service, signage, marketing and the merchandising approach. Pawnbrokers focus on providing exceptional customer service and are very active in the community, both politically, and in local charities. Pawnshops today range from a single or multi-store operation to publicly held company chains. The atmosphere at a pawnshop is nothing like what you saw in Rod Steiger's depiction in The Pawnbroker; just visit one to see for yourself.
Question: Are pawnshops a "bad times" industry?
Response: Pawnshops survive bad times if they make adjustments both at the retail and loan counters, but they do far better in good times. In hard times, customers move away to finds employment, have less ability to repay their loans and the value of all merchandise goes down. Merchandise values go down because the major retail discounters sell for less to maintain or broaden market share. If they sell for less, pawnbrokers must loan less thus earning a smaller return. Regardless of income level, most people periodically borrow money. In good times, customers are more able to repay their loans and unredeemed merchandise sells faster because customers have more discretionary income.
Question: Do pawnshops attract indigents and derelicts?
Response: Absolutely not. Indigents and derelicts have no assets to use as collateral. No one builds a business around these people. The typical pawnshop loan customer is employed, living within one mile of the store, is of either sex, and occasionally needs short term cash for an unusual bill such as a medical expense or car repairs. The typical retail customer is a bargain-hunter; either by need or desire and comes from all walks of life. Most pawnshop customers are repeat customers.
Question: Do pawnshops downgrade the neighborhood
and hurt property value?
Response: Neighborhood property values are impacted by the appearance and care given to the properties. There is no factual basis to support a claim that an eye-pleasing pawnshop negatively impacts values. On the contrary, if they attract customers, they enhance the opportunities for other merchants and the community.
Question: Are there firearms in pawnshops?
Response: Pawnshops are registered firearms dealers with permanent places of business. Pawnshops comply with all Federal (ATF) regulations as well as furnishing local law enforcement with information regarding every transaction. No other dealer does this. As registered licensed dealers, pawnshops comply with the FBI background checks required by the Brady Bill. Federal firearms regulations require an individual to be 21 years of age to purchase a handgun and 18 years of age to purchase a long gun. Pawnshops provide a unique public service by taking guns as collateral for pawn loans. They are the only business that actually takes guns out of circulation and keeps them locked up in secured vaults. There are an estimated 1.5 million secured firearms in pawnshop vaults across America.
Question: Are pawnshop rates excessive?
Response: To provide the service, all lenders must charge rates commensurate with risk, size and duration of the loan, collateral offered, and recourse. Pawnshop loans are small dollar, high risk, and short duration loans. The item stands as the sole collateral offering no other recourse. And pawnbrokers are liable for replacement value if something happens to the item in their care. There are no hidden charges as with other lending institutions. On the other hand, pawnbrokers cost basis is far greater. They incur cost for security, handling, storage, and regulation not incurred by others. Due to the 15-20% of pawnshop customers that elect not to repay their loans, pawnbrokers are forced to turn their "bad debt" into a retail center to recover their cost. Other lending institutions do not incur retail cost including additional floor space, counters, personnel, advertising, shoplifters, retail competitive cost, and new merchandise cost to supplement the unredeemed goods.
Question: Should photographing or fingerprinting pawnshop
customers be required?
Response: Pawnshop customers already provide full identification with each transaction, a copy of which goes to local law enforcement. Additionally, most pawnshops maintain surveillance cameras in their stores, the same system used by banks. To require anything more than required by banks implies there is a relationship between how much money one has and their integrity. You have questioned the quality of their character based on financial status - a form of discrimination.
Question: Should there be zoning restrictions other than
Response: Pawnshops are neighborhood businesses providing vital services to the community. To restrict zoning other than general retail should require a very compelling reason. The compelling reason should not be historical perception. To restrict zoning there should be something wrong with the service provided, the business itself, or the customer served.