How Do Pawn Shops Work? [Safety, Rules, Tips]


What is a pawn shop? Do you think pawn shops are scam operations? Pawn shops are typically depicted as shady, creepy, dusty places with suspicious, bearded men working behind the counter. Pawn shops, however, are typically clean, reputable establishments that help those in need of cash. But how do pawn shops work? In this article, we help you to understand what a pawn shop is and how they operate.

How Does Pawning Work?

Pawn shops are typically identified by three golden spheres (ancient symbols representing monetary success) which are suspended from a bar, usually above the shop’s main door. Before visiting a pawn shop, you’ll need to understand how pawning works.

What does it mean to pawn something? Pawn shops are usually small shops that offer secured loans to those who provide items of personal property as collateral. Most individuals who deal with pawn shops are looking for quick cash. But if the said property is pawned for a loan, and it isn’t paid within a contractual period (usually with interest), the pawned item will be offered for sale to other customers. Pawn shops also trade items in their shop for personal property brought to them by customers or give money for their items. Pawn shops can sometimes be a lifesaver for those with small debts.

Are Pawn Shops Well-Regulated and Safe?

People have different answers to the question: how do pawn shops work? How are they regulated? Some people think that pawn shops typically buy and sell stolen merchandise. But pawn shops are state-regulated, meaning that they must abide by various statutes and regulations of the state they operate in. The pawnbroker must record the name, address, and phone number of each person who brings an item to give to the shop, as well as any serial number that may accompany a particular item.

Note: There are more than 13,000 pawn shops in the US, most of which are small, legitimate privately-owned shops.

How Do Pawn Shop Loans Work?

There are different opinions as to what a pawn shop is. When someone brings an item to a pawn shop—typically such small items as jewelry or electronics—they give the item as collateral. The broker examines the item and determines its value. Subsequently, the broker then may extend a collateral-based loan. If the loan is accepted, the broker will give a pawn ticket (receipt), which includes fees and expiration date.

After you receive the loan, you have around 30 days to reclaim items that you left by paying the determined value for the item, plus an interest rate. Again, if the loan isn’t paid within a contractual period, the pawned item will be offered by the pawnbroker for sale to other customers. Another option is for the customer to leave the item in the pawn shop and never return to reclaim it. This way there are no consequences; you just don’t get your item back.

Receiving a loan from a pawn shop is a good alternative to the complicated procedures of applying for a bank loan. And it works best for the person who takes the loan because there are no consequences if they don’t return to the pawn shop to reclaim their item.

Note: The majority of transactions in a pawn shop (including reclaims) are made from returning customers.

Pawnshop Interest Rates

Getting a loan from a pawn shop can be a bit complicated since laws concerning fees vary from state to state. If you’d like to know the pawn shop interest rates by state, you can check the website of the National Pawnbrokers Association (NPA), which has information on how interest rates vary from state to state. Again, pawn shops are state-regulated, and charges may vary from 5% to 25% per month. For example, in North Carolina, the maximum interest rate is 2%. But pawn shops can also charge for storage, insurance fees, and handling—the maximum charge for these fees is typically 20%. (Most pawn shops charge the maximum.) In Indiana (the midwest), the interest rate is 3%, but additional charges amount to 20% per month.

Note: A personal loan is always a good alternative if you need money for home remodeling or wedding plans.

Key Takeaways

Pawning is when you take an item you own to a pawn shop in exchange for money.
The items you give to the pawnbroker are called ‘collateral’, the basis of collateral-based loans.
You can reclaim the items you give, only if you completely pay the loan off, including the interest rate.
Loan fees are state-regulated, meaning they vary from state to state.

What Do Pawn Shops Buy?

What kind of items do pawn brokers typically accept? Pawn shops buy anything valuable and in good condition. But they do have some unwritten rules. Pawning jewelry is quite popular. Pawn shops accept jewelry in all shapes and sizes because they know that jewelry can be almost immediately sold for a fair price. Brokers, however, tend to accept gold jewelry before silver because it brings quick cash.

On the list of best items to pawn for quick cash are musical instruments (guitars, pianos, drums). Collectible coins or rare paper money are also on the list because a pawnbroker can make a substantial profit with such. Electronics are also popular items for pawn shops, as well as guns; although, it’s best to contact the pawn shop to ask if they have certain policies regulating the buying and selling of guns. Keep in mind that brokers don’t usually take antiquated items of no value.

Note: If you need cash for college tuition, it is possible to apply for a home equity loan, which covers large expenses. You can only receive a small sum of short-term cash with pawn shop loans.

How Do Pawn Shops Determine Value?

When you bring a certain item to a pawn shop, the pawnbroker needs to determine the value of the item before he gives a loan. So, how do pawn shops determine value? Pawn shops base the value of an item on the current appraised value. They check whether the item is in good condition and then determine if they can resell it.

How Do Pawn Shops Work With Jewelry?

A pawnbroker first needs to determine whether the jewelry is genuine or fake. One simple test that pawn shops use is to place a magnet above the metal; if the metal is not attracted to the magnet, then it’s real. Then, they need to determine the purity of the item, which, of course, would affect its value and the amount of loan given. Finally, the broker needs to determine the weight of the item. Pawn shops have specifically designed scales only for this purpose.

How Do Pawn Shops Determine the Value of Electronics?

Each type of item is evaluated differently. For example, jewelry needs to be evaluated differently than an electronic device. So, how do pawn shops work with electronics? Generally, pawn shops prefer electronics that are no more than two years old. Living in a world where technology plays a significant role in our everyday lives, electronic devices quickly become outdated. But there are some items, such as Apple devices, that could bring a fair amount on a loan. The value of the item is also determined by its current condition, including its complete package (charger, headphones, etc).

Note: The pawnbroker is obligated to ensure that you’re the rightful owner of the item by asking various questions about the origin of the item and your possession of it.

Pawning vs Selling

Are you new in the pawn industry and don’t know whether pawning an item is better than selling? When it comes to pawn vs sell, there are some pros and cons to consider.


How does pawning work? When you pawn an item, you deposit (the item) with a pawnbroker as security for money lent.


The greatest benefits you get from pawning an item are that it’s quick and easy, and you can reclaim it, as long as you pay the loan back, including the interest rate. And it does not affect your credit score. Pawnbrokers can lend you larger amounts of money for flexible periods of time at a lower cost.


What will pawn shops buy? The downside of pawning is trying to understand what a particular shop would buy. And if you don’t pay back the loan in time, the pawn shop claims ownership of the item. What’s more, you cannot receive a loan of thousands of dollars but only a small percentage of the item’s worth.


Pawn shops are renowned for their ability to grant loans in a short period. But what about selling your item in pawn shops? For instance, is selling jewelry at a pawn shop worth it?


The greatest benefit you get from selling an item at a pawn shop is that you get paid a greater amount of money for your item than pawning it, with no additional fees.


There is one big disadvantage to selling. Once you sell the item, you relinquish any ownership of it, and you cannot rely on it for getting another loan.

Note: If you don’t want to deal with pawnshops and pawnbrokers, there are always personal loans with quick approval that offer secured short-term loans.


Most people at some time in their lives need quick money, either to pay bills or simply put extra money in their pockets. The easy option of receiving quick cash without the complicated procedure of applying for a bank loan is dealing with a pawnbroker. We’ve examined the question: how does pawning work? We have concluded that pawn shops are not scams but are legitimate and well-regulated businesses.


How much is a class ring worth at a pawn shop?

Jewelry is the most commonly pawned item in the world. A common class ring is usually made of 92.5% silver or 41.7% (10 karats) gold. These are typically pawned for about $10.00 to $15.00 per gram.

How long do pawn shops hold items before selling?

A pawnbroker typically holds an item you pawn for around 30 days before you can reclaim it. In rare cases, some pawn shops may keep your item for 40 days.

How do pawn shops work with the percentage it gives for your item?

What percentage do pawn shops give for a pawned item? Pawnbrokers tend to lend approximately 25% to 60% of the item’s resale value. You might even receive 50% for an item that is in demand. The higher the item’s value, the higher the percentage.


I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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