People have many common misconceptions about the pawnbroking industry. If you are considering getting a loan from a pawnbroker, buying or selling merchandise at a pawn shop, or seeking a career in the pawn industry, these are some facts that will help you understand the industry more accurately. 1. Pawn shops deal in stolen merchandise. Pawnshops are a business just like any other. But unlike many other businesses, pawnshops have laws that keep them on the straight and narrow. Pawnshops are specially licensed and cooperate with police to prevent the movement of stolen merchandise. All pawn shops require valid government issued identification, and some are required to get your thumb print, picture, or both, depending on State and Local ordinance. When you pawn an item at most pawnshops, they take your name and address, verify it with your driver's license and then inspect the item carefully. They test diamonds and gold for authenticity. If you are bringing in something like a TV or DVD, they test it to make sure it works properly. If it is a serial numbered item, it's also recorded on the pawn ticket. There are important reasons for this level of scrutiny. They must submit a list of all merchandise received, including serial numbers, to the police. The police compare the descriptions and serial numbers against records of stolen merchandise. Anything stolen is recovered this way and returned to the owner. Why do they do this? If a stolen item is found in a shop and the item was not reported to the police by the pawnshop when it came in, they can be charged with receiving stolen merchandise. Also, anyone purchasing an item at a pawn shop can rest assured they are buying legitimate merchandise. Quite simply, it is in everyone's best interest to keep stolen goods OUT of pawn shops! And to any pawnbroker worth their salt, reputation is everything. 2. The pawn shop wants to take my items in cheap and keep them. To the contrary, pawnshops are lending institutions and the more money they lend to their customers, the more profit they can expect. The majority of pawnbrokers will go out of their way in assuring that you can repay your loan and redeem your items should you want to. The pawnbroker hopes to be able to make a profit from the loan fees that are charged, and return your pledged merchandise to you in hopes that you may pawn it again. The pawn shop does not want your merchandise, they want your money. 3. Most pawn customers lose the merchandise they pledged. On average, about 80 percent of all loans are repaid. Repeat customers make up most of the 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 they elect to repay the loan. However, most do. 4. Pawn shops have very high finance charges. To provide their service, all lenders must charge rates commensurate with the size and duration of the loan, collateral, risk and recourse. Pawnbroker loans are small-dollar, short-duration loans. The item stands as the sole collateral and pawnbrokers are liable for the replacement value if something happens to the item while it is in their care. There are no hidden charges as with other lending institutions. A pawnbroker's fees are usually far less than the charge for a bounced check, a payday loan, or a utility re-connecting. 5. Pawn shops downgrade neighborhoods and hurt property values. 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 pawn shop would negatively impact values. On the contrary, if they attract customers, they enhance the opportunities for other merchants and the community. While there may be some pawnshops located in undesirable areas or substandard facilities, the majority of pawn locations are clean, well lit, family oriented stores. It all depends on the type of client the pawn shop is trying to attract. 6. Pawn shops attract sleazy undesirable customers. Indigents and derelicts have no assets to use as collateral. No one builds a business around these people. The typical pawnbroker's loan customer is employed, living within a few miles of the store, and occasionally needs short-term cash for an unusual bill such as a medical expense or car repairs. Pawn loan customers are generally not customers because of lack of an income; they are customers because of a lack of personal savings. The typical retail customer is a bargain hunter, either by need or desire and comes from all walks of life. Most pawn shop customers are repeat customers. 7. Pawnbroking is a "bad times" business. Pawnbrokers survive bad times if they make adjustments both on the retail floor and at the loan counters, but they do far better in good times. In hard times, customers move away to find employment, have less ability to repay their loans, and the value of all merchandise goes down. If goods sell for less, pawnbrokers must loan less thus earning a smaller return. In good times, customers have a greater ability to repay their loans and unredeemed merchandise sells faster because customers have more discretionary income. 8. Pawn shops are unregulated. Pawnbroking is actually a heavily regulated business. Most of the regulations have been initiated, sponsored and supported by the pawnbroking industry. At the local or state level, most pawnbrokers are required to be licensed and regulated. At the federal level, they follow rules from the Bureau of Alcohol, Tobacco and Fire Arms (FFL license), and are regulated by the Federal Reserve Board (Truth In Lending Act, Regulation Z) in much the same way as banks. They are also required by the Patriot Act to check all customers against the Treasury Department's database of known terrorists. 9. Pawn shops are the last resort for their customers. Most pawn loan customers go to a pawn shop as a matter of convenience and trust. Customers find that pawn loans suit their needs much better than borrowing money from family or friends, or from any other provider of short-term credit. Pawnbrokers offer the consumer a quick and confidential way to borrow money. Short-term cash needs 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 pawnbroker believes the collateral would bring in a sale. Although the loan to collateral ratio varies depending on the type of goods pledged, a loan of 30-50 percent of the resale of the collateral is typical. Pawnbroking imposes a discipline on the borrower that other lenders do not. Pawn loans do not cause people to overextend credit, alienate family and friends, or go into bankruptcy. 10. Pawn shops are obsolete and old fashioned. While pawnbroking is the oldest form of consumer credit dating back over 3000 years, and has remained nearly unchanged in structure during this time, there is a definite reason for this. A pawn loans is the only credit product that has ever been available offering the borrower a convenient form of access to short-term cash without creating an obligation. In this modern world of numerous forms of credit being liberally offered to consumers on a daily basis, no lending product can equal the civilized nature of a pawn loan. And no lending product can fulfill the needs of these borrowers as quickly and efficiently as a pawn loan. The demand for pawn loans are as great or greater than they have ever been in history, and the pawnbroking industry is continually improving and modernizing their approach to delivering this age old lending product to their customers.
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