by
Skye Parker
|
September 16, 2021
How do pawn shops make money? The simple answer to that is; pawn shops generally make their money from providing personal loans and selling merchandise.
The way a pawnshop transaction works is actually fairly simple; many people use pawn loans as a way of selling an item, or receiving money as a loan in exchange for an item placed as collateral. You walk away with the cash while leaving your item safely tucked away with your pawnbroker. If you pay your loan back within the allotted (and agreed upon) amount of time, then you will be graciously awarded your item back. These pawn loans tend to carry a lot less risk than your typical payday loan or auto title loan. Instead of racking up debt, destroying your credit and taking from your paycheck you’ve been waiting for, the worst that could happen is you lose your item! Because this deal can seem almost too good to be true, many ask themselves, “how do pawn shops make money?” The small amount of interest charged on a pawn loan as well as unrecovered items being sold on the shop floor is the way pawn shops make enough money to stay in business. The good news is that as long as you pay your end of the bargain, you’re not really at risk of losing your items for good.
How do pawn shops make money off selling things? Generally the loan amount given to you will be determined by the value of your item. On average you can get about 25%-%60 of the item's resale value. This margin is left on purpose to protect the pawnbroker from financial hardship. If you choose to leave your item behind and pocket the cash, the pawnbroker can still sell it and recover what he’s lost both purchasing and storing the item you provided.
Loans like these can be a tremendous help to those who have had bad experiences with traditional bank loans as it makes a great alternative to falling into the debt cycle. After all, the worst that can happen is you lose your item, vs potential bankruptcy.
Because the laws surrounding a pawn shop’s specific dollar amount vary so greatly from state to state, it can be difficult to single out an exact price point. The rates can be anywhere from 12% per month to 240% per month. Due to the state regulations having such a wide range, the interest rates that are acceptable can get confusing. The easiest way to break it down would be to think of it as a total allowable finance charge rather than an “interest rate”.
Try to be mindful of the items you’re pawning, avoiding anything difficult to store, outdated or rather cheaply made. Some of the best items to pawn include jewelry, coins, musical instruments, good quality tools, photography equipment, and firearms.
It’s always a good idea to know your items' worth. Pawn shop offers can vary quite a lot in value. One reason for this is simply because you can pawn almost anything. While each pawnbroker will of course do their best to give you an accurate estimate of your item, it can be a bit unreasonable to expect one person to be an expert on everything there is to pawn these days. It’s ideal for you to know the value of the item you wish to pawn so you can accept or decline offers accordingly. If you’re not sure what your item would be worth, you can visit a reputable pawnbroker like Sportsmans Pawn Shop to get a professional appraisal of your item. This will take into account the item’s market value determined by your specific item’s condition and quality, current market value, and overall demand for the item in question.
Not all pawn shops offer trade credit, but of the ones that do, you’re sure to see what a great tool it is! Trade credit is when you bring an item into a pawn or trade shop, and rather than sell it, it’s set up on the table (so to speak) for a trade. You can directly trade your item for an item close in exact value to your own or you may be able to trade your item for a higher in store credit. This can be useful if you’re not interested in taking a loss on a small portion of your item’s worth. Ask your local pawnbroker about trade credit today!
If you are interested in getting a professional appraisal on any of your personal items, Sportsmans Pawnshop is the place to go! We have amazing employees that are well versed in this line of work and will be happy to help with any of your pawning needs. You can call us at (801) 938-3807 or visit us in store today!
