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A pawnbroker is an individual or business (pawnshop or pawn shop) that offers
If an item is pawned for a loan (colloquially "hocked" or "popped"), within a certain contractual period of time the pawner may redeem it for the amount of the loan plus some agreed-upon amount for
The pawning process begins when a customer brings an item into a pawn shop. Common items pawned (or, in some instances, sold outright) by customers include
The pawnbroker assumes the risk that an item might have been stolen. However, laws in many jurisdictions protect both the community and broker from unknowingly
The pawnbroker assesses an item for its condition and marketability by testing the item and examining it for flaws, scratches or other damage. Another aspect that affects marketability is the supply and demand for the item in the community or region. In some markets, the
To assess value of different items, pawnbrokers use guidebooks ("blue books"), catalogs, Internet search engines, and their own experience. Some pawnbrokers have trained in identification of gems, or employ a specialist to assess jewelry. One of the risks of accepting secondhand goods is that the item may be counterfeit. If the item is counterfeit, such as a fake
To determine the amount of the loan, the pawnshop owner needs to take into account several factors. A key 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
The pawnshop owner also takes into account their knowledge of
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 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, and the pawnshop owner may take many factors into account. For example, if a young able-bodied man comes into the pawnshop to pawn an electric wheelchair (perhaps claiming it to be the possession of his late grandparent), the pawnshop owner may doubt that the item will be redeemed. 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. Some customers may attempt to persuade the pawnshop owner that the item in question is important to them ("that necklace belonged to my grandmother, so I will certainly return for it") as a means of obtaining a loan. Other customers return to the same store, repeatedly pawn the same item(s) as a way of borrowing money, and return to pay the interest and recover the item(s) before the end of the loan period; thus, the pawnbroker knows that redemption is likely and will therefore make the loan.
The saleability of the item and the amount that the customer wants for it are also factored into the pawnbroker's assessment; if a customer offers a very salable item at a low price, the pawnbroker may accept it even if it is unlikely that the customer will return, because the pawnshop can turn around a quick profit on the item. However, if a customer offers an extremely low price the pawnbroker may turn down the offer, because this suggests that the item may either be counterfeit or stolen.
In some countries e.g. Sweden there is legislation to prevent the pawn broker from making unfair profits (
Pawnshops have to be careful to manage how many new items they accept as pawns: either too little inventory or too much is bad. A pawnshop might have too little inventory if, for example, it mostly buys jewels and gold that it resells or smelts—or perhaps the pawnshop owner quickly sells most items through specialty shops (e.g., musical instruments to music stores, stereos to used hi-fi audio stores, etc.). In this case, the pawnshop is less interesting to customers, because it is mostly empty.
On the other extreme, a pawnshop with a huge inventory has several disadvantages. If the store is crammed with used athletic gear, old stereos, and old tools, the store owner must spend time and money shelving and sorting items, displaying them on different stands or in glass cases, and monitoring customers to prevent
The better option lies in the middle: a store with a moderate amount of good quality, brand-name items arranged neatly in the display windows attracts passersby, who are more likely to enter and shop. If items are attractively laid out in display cases and shelves, the pawnshop looks more professional and reputable. Once passersby start shopping in the store, they may be more inclined to pawn or sell their own items to the pawnshop. Some pawnshop owners prevent cluttered look by storing overstocked items, or less attractive items such as snow tires, in a back room or basement. Some pawnshop companies operate a chain of stores in a state or province. This way, they can balance inventory between stores. For example, they can move some of a rural store's surfeit of fishing gear to an urban store.
Some stores also slim down inventory by selling items to specialty retailers. A pawnshop in a low-income neighborhood that pays a customer $300 for a power amplifier with a used value of $2000 may find the unit hard to sell alongside much less expensive merchandise. They may sell the amplifier to a used audio equipment store whose customers expect higher end equipment. Some pawnshops sell specialty items online, on
Another growing trend in the industry is vehicle pawn or auto pawning. This form of Pawnbroking works like a traditional pawn loan, however these stores only accept vehicles as security. Many stores are also accepting "Title Loans", where you can pawn the ownership or "Title" documents of your vehicle. This essentially means that the pawnbroker owns your car while you drive it, and you regain ownership once you pay back your loan.
While the main business activities of a pawnshop are lending money for interest based on valuable items that customers bring in, some pawnshops also undertake other business activities, such as selling brand-new retail items that are in demand in the neighborhood of the store. Depending on where a pawnshop is located, these other retail items may range from musical instruments to firearms. Some pawnbrokers also sell brand-new self-defense items such as pepper spray or stun guns.
Many pawnshops will also trade used items, as long as the transaction turns a profit for pawn shop. In cases where the pawnshop buys items outright, the money is not a loan; it is a straight payment for the item. On sales, the pawnshop may offer
Some pawnshops may keep a few unusual, high value items on display to capture the interests of passersby, such as a vintage Harley Davidson motorcycle; the owner is not typically expecting to sell these items. Other activities carried out by pawnshops are financial services including fee-based check cashing,
Upscale pawnshops began to appear in the early 20th century, often referred to as "loan offices", since the term “pawn shop” had a very negative historical reputation at this point. Some of these so-called loan offices are even located in the upper floors of office buildings. The modern euphemism for the upscale pawn shop is the "high-end collateral lender", lending to upper-class often white-collar individuals, including doctors, lawyers and bankers, as well as more colorful individuals like high-rolling gamblers. They are also interchangeably called "upscale pawnshops" and "high-end pawnshops" due to their acceptance of higher value merchandise in exchange for short-term loans. These objects can include wine collections, jewelry, large diamonds, fine art, cars, and unique memorabilia. Loans are often sought to deal with business revenue shortfalls and other expensive fiscal issues. Upscale pawnshops have also been featured in reality television.