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HOW DO PAWN SHOPS MAKE MONEY?

The pawnshop industry has originated from ancient China when peasants were granted short-term credit in exchange for their valuables.  The business also thrived in ancient Greece and Rome when merchants were given small capital to set up their shops. In Italy, the Medicis were known as the money-lending family, and in England, the Lombards became very famous as the pawnshop that loaned King Edward (in exchange for his jewels) the money that helped finance England’s war against France. Christopher Columbus’ expeditions to the New World is said to have been financed by Queen Isabella who also pawned her jewelry in exchange for the funds.

Pawnshops provide borrowers with money in exchange for their valuables or other items offered as collateral. If the borrower pays the loan back including interests, within 30 days, or a certain period of time, he can get his valuable back. If not, the pawnshop is free to auction his item. Business continues to flourish during these hard times.

In the U.S., statistics provided by the National Pawnbrokers Association reveal that the average pawnshop customer is 39 years old and has an annual income of $29,000. This income is below the median household income of $52,000.

Pawnshop owners report that they have recently been serving older and more affluent customers and statistics for  2010 and 2011 could be different.

Here are the ways the pawnshop makes money:

            1. It earns money from the interest (20-30% per 30 days) paid by the borrower;
            2. It earns money from the processing or other fees paid by the borrower;
            3. It earns huge money from the sale of unclaimed items through auction;
            4. It earns money from other transactions involving the disposal of gold items;
            5. It earns money  from storage fees, appraisal fees,  and handling fees.

The pawn broker will determine the value of the pawned item on the basis of the percentage of its value. He will then make an offer to either purchase it or accept it as collateral for a loan. The seller decides and pawns the item and he signs a Pawn Ticket that shows the following:

            1. Name of Borrower
            2. Amount borrowed
            3. Interest rate
            4. Finance charges
            5. Amount to be paid on or before the due date
            6. Description of the collateral item
            7. Signatures of the Borrower and the Pawn Broker

Pawnbrokers are governed by some of the major federal laws that regulate other financial entities and institutions. Some of these federal laws are:

  1. USA Patriot Act
  2. Equal Credit Opportunity Act
  3. Bank Secrecy Act
  4. Data Privacy as part of the Federal Trade Commission (FTC) Rules
  5. Truth-in-Lending Act.

From the pawnbroker's standpoint, a pawnshop is simply a business. The real experience comes from buying and selling things every day.

It is easy to buy auctioned items at the pawnshop.  It could be a great place to buy rare and precious collector’s items at a bargain price.  Just walk into a pawnshop having an auction sale, shop around, inspect items, choose, pay for it, and go home.