11 Dirty Secrets You Don’t Know About Pawn Shops
Everything you think you know about pawn shops is wrong. Most aren’t sketchy enterprises staffed by con artists dealing in stolen goods. Nor are they typically in the business of shelling out big dollars for rare collectibles like the crew at Las Vegas’ World Famous Gold & Silver Pawn Shop, the store featured on Pawn Stars.
Instead, pawn shops are in the distinctly unglamorous but useful business of loaning small amounts of money — $150, on average — to people who need cash fast. The industry serves millions people annually, but if you’ve never set foot inside a pawn shop, the whole process probably seems a bit mysterious. To clear up the confusion, we talked to a pawn industry expert who helped clue us in to some of the big truths about pawn shops, how they work, and whom they serve.
1. Pawn shops are big business
“There are somewhere around 12,000 or 13,000 pawn shops in the U.S. Around 30 million Americans rely on them to either make ends meet or to buy and sell used merchandise out of convenience,” Jordan Birnholtz, the founder of PawnGuru, a website that helps people find pawn shops interested in their items, told The Cheat Sheet.
Pawn shops provide short-term, collateral-based loans to consumers. Getting a loan is fairly straightforward. You bring an item to a pawn shop. The pawnbroker looks it over. If he thinks it’s something he could eventually sell, he will offer to loan you a fraction of its value. If you accept the offer, you get cash on the spot. You also have a set time — usually around one to four months — to pay back the money you borrowed from the pawnbroker, plus any interest and fees. If you can’t repay the loan, you lose your collateral (the pawned item), which the pawnbroker can then sell to make his profit.
2. Pawn shops are a financial lifeline for some
While people from all walks of life use pawn shops, they’re especially popular among those outside the financial mainstream. More than one-quarter of U.S. households are unbanked or underbanked, according to the Federal Deposit Insurance Corp. And these families rely on services, such as payday loans, auto title loans, rent-to-own stores, and check cashing, for all or some of their day-to-day financial transactions. Forty percent of these households have also used pawn shops, according to the National Pawnbrokers Association.
The pawn-shop loans are an attractive proposition for those on the financial fringes for a couple of reasons. Not only can a pawn loan be obtained without a credit check, but the debt is relatively low-risk. If you can’t repay your pawnbroker, you lose the item, but you won’t receive a black mark on your credit report. Compare that to high-interest payday loans, which can easily trap consumers in a spiraling cycle of debt.
“People would not need pawn shops to make ends meet in an ideal world. But it’s a much better alternative for a low-income or unbanked person with a financial emergency than a payday lender,” Birnholtz said. “It sucks to lose your item, but it’s a lot better than being trapped for years and [stuck with] thousands of dollars of onerous, hard to understand fees.”
3. Pawn shops aren’t as scary as you think
Pawn shops don’t exactly have the greatest reputation. In many people’s minds they’re seedy and a bit scary, run by creepy-looking guys, and filled with desperate customers. But those pawn shop stereotypes aren’t grounded in reality, according to Birnholtz.
Pawnshops “are not the happiest place on Earth,” Birnholtz admitted. But the industry has cleaned up its act in recent decades. “I think that the level of professionalism and cleanliness and service has improved really dramatically in the pawn industry over the past 30 or so years.”
Go to a pawn shop today, and you’re likely to find yourself in a clean, well-lit store, stocked with quality used merchandise. Some are even turning to Instagram to sell their luxury goods. And the idea that pawn shops are filled with items of dubious provenance? It’s just not true, according to industry groups, who say less than 1% of items people try to pawn turn out to be stolen. Legitimate pawn shops check ID and work with law enforcement to make sure the things they’re selling aren’t stolen property.
4. It’s not like what you see on Pawn Stars
Pawn shops might not be the dens of vice some think they are, but they’re also not quite like what you see on TV shows, such as Pawn Stars. The mega-popular History Channel program thrust pawn shops into the spotlight and helped normalize pawning, Birnholtz said. The scenes you see on the show, however, are unlikely to play out in your neighborhood pawn shop, which is more likely to be stocked with gold jewelry, electronics, and gently used musical instruments than rare rock memorabilia or Star Wars collectibles.
Pawn Stars is “not necessarily representative of how most people use pawn shops because they deal in really, really specialized items,” Birnholtz said. “They’re a big shop with probably pretty good margins, so they can afford to pay lots of money for lots of unique items. Whereas most pawn shops can’t do that.”
5. Pawn offers vary — a lot
In a perfect world, every pawn shop would offer to loan you roughly the same amount of money for the same item. In reality, that’s not how it works. The average difference between the highest and lowest bid for the same item at different pawn shops was 258%, according to data gathered by PawnGuru in 2015.
That vast disparity in loan offers was one reason Birnholtz created PawnGuru. Rather than spending an afternoon visiting different pawn shops to get the best deal (or unwittingly settling for a low-ball offer), people can now go online, share the item they want to pawn (or sell outright), and get quotes back from local pawn shops. “That gives people the power to negotiate with multiple shops at once to figure out which one is actually going to give them the best deal,” he said.
6. You can pawn almost anything
Guns and gold might be some of the more common items people think of pawning when they need some cash, but in theory, you can pawn almost anything. You just need to find a pawn shop that thinks it would be able to sell your stuff. Different stores specialize in different types of items, which is one reason to shop around using PawnGuru. Not every store might be interested in what you’re offering or have the knowledge to give you a fair price.
Although pawn shops are interested in anything of value they can eventually sell, some categories of items do tend to do better than others. “I would say that jewelry, musical instruments, and game consoles — plus high-end electronics that aren’t phones — do well, whereas digital accessories and electronics that go obsolete really quick don’t do so hot,” Birnholtz said.
7. You should know your item’s worth
Before you attempt to pawn something, it helps to have an idea of what it’s worth. (And we mean what it’s really worth, not its sentimental value.) Whether it’s researching how much similar items have sold for on eBay or taking your jewelry to an appraiser, knowing the value of what you’re trying to pawn will give you a baseline to work from. Just don’t expect to get anything close to its actual retail value. A pawn shop needs to make a profit if you don’t return to claim your item, so it will offer to loan you just a fraction of what it thinks it might be able to sell the item for later.
“You’re going to get a little bit less than for what it closed for on eBay because in essence you’re paying for liquidity,” Birnholtz said. “You’re getting your money today, you’re reducing hassle and that’s part of the advantage a pawn shop provides”
8. Pawn loans aren’t cheap
Pawn shops have some advantages over other “lenders of last resort,” such as payday loans, but that doesn’t mean they’re cheap. Interest rates (which are typically state-regulated) can range from 30% to 300%, according to Bankrate, and some shops will tack on additional fees or service charges. If you have another way to borrow money, such as a credit card or personal loan, it will likely be cheaper than pawning. The disadvantage of more traditional lending is you need decent credit to borrow. And if you can’t pay back your loan, your credit score will suffer.
9. Most people get their items back
Pawning an item doesn’t mean kissing it goodbye forever. The idea is you’ll eventually repay the money you borrowed (plus interest and fees) and then get your guitar or watch back. And that’s exactly what happens most of the time. Eighty-five percent of pawn shop customers eventually reclaim the item they pawned, according to the National Pawnbrokers Association. Compare that to payday loans, where one-third of borrowers default within six months of taking out their first loan, according to a study by the Center for Responsible Lending.
10. Many pawn shop users are unemployed
A recent PawnGuru survey confirmed what many people probably assumed about pawn shop users: A significant number are unemployed or underemployed. Fewer than half of pawn shop customers had full-time jobs, the survey found. Young and old pawn shop users were most likely to be out of work. Forty-seven percent of people over 50 who used pawn shops were unemployed, while 42% of those between 18 and 25 didn’t have a job.
The same PawnGuru survey found people generally start using pawn shops at two points in their life: either when they’re relatively young or when they’re in or nearing retirement age. Some of the older first-time pawn shop users might be turning to pawning to supplement limited or fixed incomes, PawnGuru speculated.
11. Many pawn shop users have had bad experiences with traditional banks
Not only are many pawn shop users out of work and likely looking for an easy way to scare up some cash, but they’ve also had bad experiences with traditional banks that could be pushing them toward pawn shops.
“We find that around three-quarters of our users either personally or have a close friend or loved one who has had a memorably negative experience with a bank. That’s 40% higher than the national average,” Birnholtz said. Of the PawnGuru users who do have bank accounts (and many don’t), they’re twice as likely to have incurred overdraft charges or other bank fees. That suggests traditional banks aren’t doing a good job of meeting the needs of certain consumers and that pawn shops are stepping in to fill the void, according to Birnholtz.
“People are turning to an alternative lending and finance system because it’s really difficult to keep your money and to build your wealth with a mainstream bank when you are low income,” he said. “There’s this very high level, early in the pipeline problem with how people store and access their money in the U.S. I think that pushes people into situations where they are likelier to be financially insecure and I think as a result they turn to things like payday lending, to pawn shops and to other emergency financial services.”