Pawnbroking in practice

Image attribution: Mtarlock; C.C. By S.A. 2.0

By L. Keen, 

If you’re a fan of early evening television, there is a good chance you have come across a series about a pawnbroking shop, their staff and their customers. The current credit crunch has meant that pawnbrokers are seeing ever more people coming through their doors and using their valuables to get cash loans. Pawnbroking used to have a shady image, but the economic climate has changed this perception completely.

 

History

Pawnbroking is not a new concept by any stretch of the imagination. There is evidence that in Ancient Greece and Rome there were people lending money against valuables such as jewellery and property, and through the Middle Ages people were borrowing against their oak dining furniture or their stash of gold rings. Edward III is said to have pawned the crown jewels to raise cash for the war against the French and Spanish royalty used pawn money to finance explorations of the new world.

 

How it works

Anyone can be a customer of a pawnbroker, as long as they are over the age of 18 and are the legal owner of the item they wish to get a loan against. The range of items a pawnbroker is prepared to accept depends on the individual business, and the vast majority of items taken in are small items of jewellery, especially anything made of gold or set with precious stones. Pawnbrokers are less likely to accept large items such as oak dining furniture even if they are antique or valuable because of the associated storage costs. The pawnbroker works out how much he thinks he could sell the item on for and then calculates how much the customer can get as a loan. The loan is then paid out immediately in cash.

 

Repayment

 

Interest is charged on the amount loaned, and charged on a monthly basis. At the end of the month, the customer can either pay just the interest to keep their item safe, or pay back the entire amount and reclaim their item. APR rates are high at around 100%, but they are still considerably less than the interest rates charged by the payday lending companies. This is why in the current situation many people are pawning their valuables rather than taking out a very costly short term loan

 

Selling On

 

The percentage of people who return for their items and pay back the loan is unknown, but it is a fact of the pawnbroking business that some of the items are never reclaimed. When this happens, the pawnbroker is free to dispose of the items as they see fit. Most of the items will be sold through a shop attached to the pawnbroking business itself, and more expensive items will be sold through an auction. If the pawnbroker has done a good deal on making the initial loan, selling on unclaimed goods can be very lucrative. For buyers, buying from a pawnbrokers shop can offer the opportunity to get something a little bit different from the mass produced items sold at the main high street jewellery chains.

Guest article by blogger L. Keen.  Intrigued by the practice, Keen has worked hard to research exactly how pawn shops operate. She usually saves money by hunting out a bargain online from stores such as National Furniture who sell great value Oak dining furniture amongst other furniture styles.