Steadfast Finances
A Personal Finance & Investing 101 blog that delves into current events, consumer education, and techniques to improve your bottom line.
Ever Wonder How a Pawn (Pawn Shop) Works?
I’ve never frequented a pawn shop in my life, but lately, I’ve been rather enthralled with The History Channel’s new show — Pawn Stars.
As a student of consumer psychology, I find it somewhat surprising that so many people are willing to part with some of their most treasured possessions (and other stuff that seems like complete crap) for cold hard cash. Then again, considering the severity of the recession, it’s not surprising that a growing number of people don’t have much choice when it comes to making ends meet.
If you find yourself in this unfortunate situation (or your ex boyfriend pissed you off something fierce!), it’s probably a good idea to know what you’re up against if you expect to get top dollar for your whatever. So here is a short video clip from one of the stars of the show, Chumlee, to explain the how the pawn works, and the options you have available once you enter negotiations.
7 Comments
Sep 12, 20099:00 am
@ NDP
They really haven’t focused on the back end of their money making transactions, however, I’m fairly certain they get a healthy markup. The lead guy is always saying “I’m buying at wholesale, and selling on retail”, so that’s probably a 20% to 50% markup at least.
I believe you’re correct on the loan to value idea as well. There have been instances where people will pawn a car/bike, get the loan, and come back within a few weeks to reclaim their property. One guy pawned a bike, got a low ball offer, and I hope for his sake, he came back to repay the loan (plus 10% interest) because his bike was worth way more than the loan he took.
Seems like another well conceived way of making money on the desperation factor.
Sep 12, 20091:44 pm
Actually, pawnbroking is the oldest form of consumer credit dating back nearly 5000 years. Reality television does very little to reflect the true reality of this important source of short-term consumer credit.
Sep 12, 20091:51 pm
@ Pawnonomics,
Thanks for commenting. As I mentioned, I know next to nothing about pawnbroking, but the show does intrigue me. I wasn’t insinuating a negative by “making money on the desperation factor” considering that is a basic component of supply and demand, but simply referring to the increase in pawn shop business (at least according to CNBC commentary I’ve seen) in relation to the recession.
Sep 15, 200910:05 am
It is my understanding that a pawn loan is a non-recourse loan, which means the borrower is under no obligation to repay the loan. Therefore the pawnbroker would be an idiot if they were to loan the full value of the item. In that case, there would be no incentive for the borrower to get their item back. Even banks only lend 80% of the value of collateral, and with a bank, you MUST repay the loan or they will come after you.
Sep 15, 200910:15 am
@ Bobby,
Makes sense. Plus would give some wiggle room for making a small profit since the pawn broker can just resell the item. Thanks for commenting.
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11:48 pm
Very interesting. Nothing like collateral to cover the loan! Have they mentioned during the show how they then sell the pawned/sold to them items? Is it all walk-in business or eBay or…?
Just curious as to what kind of margins they earn on that end of the business. Obviously 10% per month loans are nice and I’m sure they don’t give 100% loans (e.g. I pawn my car for $8000 I’m guessing they give me a loan for $6,500 or something like that).