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Understanding the Business Of Pawnbrokers

The words "pawn shop" may conjure mental images of some seedy place with dusty displays of old jewellery and a myriad of things that don't make sense when they are lumped together. You've probably come across a few that sell everything from handyman tools, clothes, gold jewellery and knives. Pawnbrokers are more than just retailers. They are money lenders. The things that you will find displayed in a pawn shop do are pledges made by borrowers as collateral for the amount of money they are borrowing. It is not that much different from a bank, except, that a bank dealing in  currency for currency not currency for Grandma's old silver tea set.

How do Pawnbrokers work?

There are two ways to approach a pawnbroker - the first one is to leave something of value as collateral or security for the loan amount you are seeking. The second approach is to sell to a broker outright. You can pawn anything and sell anything to your local pawn broker. If you have something valuable that you aren't quite ready to part with yet. You can put it down as security and then pay the loan off over an agreed period of time after which you can get your treasured valuables back.

How does it work?

When you hand over the valuable item to the pawnbroker, he will then value it and put a price on it. You can then discuss this price and haggle if you must. Remember the goal is to get money over a short period of time without actually losing your valuables. The broker will need to give you a 'Pre-contract Credit Information Form' which should set out how much the loan is, the payment period and the amount you will be paying over that period. Most pawn deals have a loan repayment of 3 to 6 months.

You will be given a credit agreement form to sign. You will then be issued with a separate pawn receipt that you will be required to produce to prove that you are the owner when you've paid off the loan and need to redeem your valuables.

What can you expect to pay a pawnbroker?

Pawnbrokers charge a rate of interest that exceeds what you would normally pay at a high street bank. However, the rates are a lot less than what a payday lender will charge you.

You may be quoted a daily or monthly rate, however, the pawnbroker will also need to show you the annual interest rate and the 'Annual Percentage Rate of Charge'. Before you sign any documentation and hand over your valuables compare pawnbrokers in your area and choose one with competitive rates.

Usually, the loan is paid with one payment, but some pawn brokers will allow you to make payments in instalments. If for some reason, you need more time to pay the loan off, talk to the Pawnbroker about it. The standard agreement is that if you don't pay back the loan, you will lose your valuables. Some brokers may extend the payment period. A new credit agreement will have to be drawn out. This is something that is entirely at the pawnbroker's discretion. If the answer is no then that means you have no rights to the valuables and the pawnbroker can sell them to recoup the money loaned to you. 

What can you pawn?

Anything that has value and can be re-sold can be pawned. However, not all pawnbrokers accept anything. Different brokers have different preferences. Some pawnbrokers will accept anything from designer bags to gold jewellery. You will also find antique swords, antique toys, antique books too. Compare pawnbrokers and see which one specialises in what you have to "pledge", if it's gold jewellery they specialize in then there is no point in you trying to pawn special edition baseball cards.