A pawnbroker (or pawnshop ) is an individual or business that offers secured loans to people, with items of personal property used as collateral. The word pawn is derived from the Latin pignus , for pledge, and the items having been pawned to the broker are themselves called pledges or pawns , or simply the collateral.
If an item is pawned for a loan, within a certain contractual period of time the pawner may purchase it back for the amount of the loan plus some agreed-upon amount for interest. The amount of time, and rate of interest, is governed by law or by the pawnbroker's policies. If the loan is not paid (or extended, if applicable) within the time period, the pawned item will be offered for sale by the pawnbroker/secondhand dealer. Unlike other lenders, though, the pawnbroker does not report the defaulted loan on the customer's credit report, since the pawnbroker has physical possession of the item and may recoup the loan value through outright sale of the item. The pawnbroker/secondhand dealer also sells items that have been sold outright by customers to the Pawnbroker or secondhand dealer.
Business model
Assessment of items
The pawning process begins when a customer brings an item into a pawnshop or pawn shop . Common items pawned (or, in some instances, sold outright) by customers include jewelry, electronics such as televisions, car stereos, speakers, computers and video games, DVD movies, music CDs, musical instruments (often popular music instruments such as electric guitars and basses and keyboards), and tools (both hand tools and power tools). In the US, pawnshops with firearms licences sell pistols and rifles to customers who meet state and federal acquisition criteria. In other countries, though, such as Canada and the UK, pawnshops do not sell firearms. Gold, silver, and platinum are popular items which are often purchased; even if the source (such as a piece of broken jewelry) has little value, the metals can still be sold in bulk to a bullion dealer or smelter for the value of the gold, silver, or platinum content. Similarly, with jewelry that contains genuine gems, even if the jewelry is broken or missing pieces, the jewels may have value in their own right because they can be reset into a new item of jewelry.
The pawnbroker assumes the risk that an item purchased was actually stolen property. However, laws exist in many jurisdictions that protect both the community at large and the brokers from unknowingly engaging in criminal activity (buying and selling stolen goods). These laws often require the pawnbroker to establish positive identification of the seller through photo identification (such as a driver's license or government-issued identity document), as well as a holding period placed on an item purchased by a pawnbroker (to allow for local law enforcement authorities to track down stolen items). In some cities, pawnshops must give a list of all newly-pawned items and their serial number to the police, to allow the police to determine if any of the items have been reported as stolen. Many police departments will advise burglary or robbery victims to visit local pawnshops to see if they can locate stolen items which might have been pawned or sold to the pawnbroker. If such items are located they, in most cases, are returned to victim with or without compensation to pawnbroker depending on local laws. The person who sold or pawned such items is investigated by local law enforcement. Some pawnshops set up their own screening criteria to avoid buying stolen property. In some areas where there is a great deal of bike theft, for example, pawnshop owners may decide not to accept used bikes, because the likelihood of them being stolen is too high.
The pawnbroker assesses an item for its condition and saleability by testing the item (in the case of electronics or instruments) and examining it for flaws, scratches, or other damage. Another aspect that affects saleability is the supply and demand for the item in the community or region. In some areas, the used goods market is so flooded with used stereos and car stereos, for example, that pawnshops will only accept the higher-quality brand names. Alternatively, a customer may offer to pawn an item which will be difficult to sell, such as a surfboard in an inland state or a pair of snowshoes may be offered to a pawnshop in a southern state. The pawnshop owner will either turn down hard-to-sell items or offer a very low amount of money for these items. While some items will never get outdated, such as hammers and hand saws, electronics and computer items can quickly get out of date and become unsaleable. As such, pawnshop owners have to learn about the different makes and models of computers, software, and other electronic equipment, so that they can discern between items which are still salable, and those which are obsolete (e.g., a 386 computer).
To assess the value of different items, pawnbrokers use guidebooks ("Blue Books"), catalogs, Internet search engines, and their own experience to subjectively evaluate the goods. Some pawnbrokers have training in the identification of gems, or they employ a specialist with gem training to assess jewelry. One of the risks when accepting secondhand goods is that the item may be counterfeited or stolen. If the item is counterfeited, such as a fake Rolex watch, it may have only a fraction of the value of the genuine item. If the item is stolen property, the police can recover it to return it to the rightful owner. Once the pawnbroker has determined that the item is genuine, not likely to be stolen, and that it is saleable, the pawnbroker offers the customer an amount for it. The customer can either sell the item outright if (as in most cases) the pawnbroker is also a licensed secondhand dealer, or offer the item as collateral on a loan.
Determining amount of loan
To determine the amount of the loan, the pawnshop owner needs to take into account several factors. One factor is the predicted resale value of the item. This is often thought of in terms of a range, with the low point being the wholesale value of the used good, in the case that the pawnshop is unable to sell it, and they decide to sell it to a wholesale merchant of used goods. The higher point in the range is the retail sale price in the pawnshop. For example, a five-year old 42" Sony TV may have been bought by the customer for $1000. However, as a used item in a pawnshop, it will only fetch $250 and $300, because the customers will be wary that it might be a "lemon" that the seller is getting rid of because it has some hard-to-detect problem. Used electronics wholesalers will buy the TV for $100 to $150. The wholesaler pays a lower price than the retail value because they have the added cost of hiring electronics technicians who overhaul and repair the items so that they can be sold in used electronics stores.
The pawnshop owner takes into account their knowledge of supply and demand for the item in question to determine if they think that they will end up selling the TV for $100 to a wholesaler or $300 to a pawnshop customer. If the pawnshop owner believes that there are "too many used TVs around these days in town", they may fear that they will only get $100 for the TV if they have to unload it to a wholesaler. With that figure in mind as the expected revenue, the pawnshop owner has to factor in the overhead costs of the store (rent, heat, electricity, phone connection, yellow pages ad, website costs, staff costs, insurance, alarm system, etc), and a profit for the business. As such, the customer who comes in with this TV that they paid $1000 for when it was new may be offered as little as $50 by the pawnshop owner, who is taking into account all of the risk and cost factors.
In determining the amount of the loan, the pawnshop owner also assesses the likelihood that the customer will pay the interest for several weeks or months and then return to repay the loan and reclaim the item. Since the key to the pawnshop business model is making interest off of the loaned money, pawnshop owners want to accept items that the customer is likely to want to recover, after having paid interest for a period on the loan. If, in an extreme case, a pawnshop only accepted items that customers had no interest in ever reclaiming, it would not make any money from interest, and the store would in effect become a second hand dealer.
Determining if the customer is likely to return to reclaim an item is a subjective decision, of course, and wily customers may attempt to persuade the pawnshop owner that the item in question is important to them ("that watch belonged to my grandfather, so I will certainly return for it"), and they will claim that they will return to recover it. The pawnshop owner can use a variety of factors to evaluate the likelihood that the customer will return, such as whether the customer lives in the neighborhood or whether the customer has a good track record of returning to the pawnshop to recover items. Some customers may return several times over a year and pawn the same valuable item as a way of borrowing money, and they return each month to pay the interest and recover the item.
As well, the pawnshop owner can assess the item and the pawner; if a non-disabled twenty year-old male comes into the pawnshop to pawn an electric wheelchair (perhaps the posssion of his late grandfather), the pawnshop owner may doubt the man's claims that he will return for the wheelchair. On the other hand, if a middle aged man pawns a top quality set of golf clubs, the pawnshop owner may assess it as more credible that he will return for the items. The sal
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