Pawn Shops; How Do they operate?

A pawn shop is a business offering secured loans to people, with items of personal property used as security. Traditionally, valuables such as precious metals, jewelry and musical equipment were pledged as collateral Jewelry and Pawn USA. In today’s set up, however, pawn shops accept typically any item of value ranging from electronics to motor vehicles, machinery, land and buildings. The idea is, you deliver your property to a person, who in turn lends you money. If you default, he will have the right to sell your property without further consultation. 

This article examines how pawn shops are used by unscrupulous businessmen to raise money in our contemporary society.  

When you walk the streets anywhere today, you will find all sorts of businesses that deal with a wide range of merchandise. It is not uncommon nowadays to find a shop selling an assortment of computers made by different companies, alongside gold or diamond chains. Or a supplier whose business premises professes to selling building and interior design materials, having a fleet of motor vehicles for sale on its website. 

Signages such as, ‘Get Cash against Items’ or ‘Second-hand Items’ along the street are just a few examples of how to spot a pawn shop. Others have been disguised as Banking and Microfinance institutions out to help some struggling client access credit. And their credit is so instantaneous; you won’t need to fill out that lengthy bank form, written in the fine print. You just need to deliver your valuable item and there you go! They won’t even check your credit listing and rating history to decide whether to lend to you or not. 

So, what happens after you deliver your property at the pawn shop? Most of the time you will be told that your item won’t be able to fetch as much money as the credit you are asking for – in the event you default. You will therefore be requested to provide another item on top in order to adequately cover the loan amount. You can also settle for a lesser amount of money, usually half the market price of the pledged item or less. 

Pawn shops literally make profits by undervaluing goods delivered to them by customers and sell them as though they were ordinary white-market merchandise. As soon as you make an agreement to deliver your property to a pawn broker for a loan, he immediately looks for a market even before expiry of the lending terms because he assumes that you will default and the lien clauses take full effect when the ‘agreement’ is signed. 

While not all pawn brokers are swindlers, it is important to note that contracts made with pawn shops are not similar to those of bailment. A Bailee will sell property only upon the Bailor’s refusal or failure to execute his duties of either making payment or taking delivery of his property. Many pawn shops don’t operate on written agreements, assigning duties and conferring rights to each party. They operate mostly on a ‘Gentleman’s agreement’ basis, which places the customer at the mercies of the broker.