Consumer Protection

How Pawnshops Work

Updated by Amy Loftsgordon, Attorney
Learn about the rules of the trade for pawnshops and pawnbrokers.

Payday lenders, title lenders, and pawnshops all market their services to people who don’t have a lot of options for getting cash fast. Of the three, pawnshop loans are perhaps the least predatory. Still, if you’re considering pawning an item, you’ll want to learn what to expect before making a trip to the shop to make sure that you get the best deal possible.

How Pawning Your Property Works: The Basics

Pawnbrokers have been serving as a resource for cash-strapped people hoping to sell an item—or put up valuable property in exchange for a short-term loan—for thousands of years. The process of pawning property for fast cash starts when a customer brings an item into the shop. Before agreeing to work with you, the broker must determine whether it wants your item. The broker will take into account the property’s resale value, whether there’s much demand for it, and, if you want a loan, how likely it is that you’ll pay off the loan and reclaim the property.

Once the shop decides it wants your item, the shop can profit from the property in different ways, like by:

  • charging interest on a short-term loan secured by the item (collateral)
  • selling the collateral if you fail to repay the loan, or
  • selling the item it purchased from you outright.

If the broker agrees to give you a short-term loan, you’ll leave the item with the pawnbroker as security for a specified period. In exchange, you’ll get your loan proceeds and a claim ticket that you may use to redeem the item. It’s important to keep the ticket in a safe place because sometimes it’s the only proof you’ll have that you’re entitled to the property. If you pay off the loan as agreed, you’ll get the item back. If you don’t repay the loan, the broker will recoup the loaned money by selling your property.

Whether you're selling an item or using it as the basis for a loan, you should expect the pawnbroker to offer a lower price than what you paid for it. Some haggling is expected.

What Types of Property Do Pawnbrokers Accept?

Because a pawnbroker will want to turn around the property fast, you’ll have a better chance of striking a deal if you want to pawn a smaller item that will sell quickly. Belongings that brokers commonly accept include:

  • appliances
  • jewelry
  • collectibles
  • coins
  • sporting goods
  • tools, and
  • electronic equipment.

Keep in mind that the broker is unlikely to be interested in items that people don't really want. For instance, if you just moved from a beach town to a mountain region and you want to pawn your surfboard, you might be out of luck. The broker might assume that because you don’t need it, you’ll be unlikely to return to claim it, or, worse yet, no one else will want it either. The last thing the pawnbroker wants is a valueless item taking up a lot of space in the shop. So, unless the broker knows a local who likes to surf or has a way to liquidate the board online, it’s unlikely that you’ll get a loan or be able to sell it to the pawnshop.

Before Visiting a Pawnshop, Do Your Homework

It's a good idea to do some preliminary research before you start the process of pawning an item. You should:

  • Check to see that the pawnshop’s license is current.
  • Find out if the pawnshop is a reputable business by checking its status with the Better Business Bureau.
  • Research other options—like getting a loan from your credit union or getting an advance or emergency credit from an employer, nonprofit organization, or community group—to make sure you’re getting the best deal.

Laws That Apply to Pawnshops

Pawnshops must follow specific laws geared to protect you as a consumer, as well as the public as a whole. Some states have laws regulating the amount of interest and the length of loans. Many federal laws also apply to pawnshop transactions, like:

  • The Truth in Lending Act, which requires a shop to disclose loan terms.
  • The Equal Credit Opportunity Act, which prohibits lending discrimination due to age, gender, race, national origin, color, religious preference, marital status, or receipt of public assistance benefits.
  • The Bank Secrecy Act, which requires a lender to report transactions over a certain dollar amount.
  • The Patriot Act, which requires lenders to collect information from borrowers to confirm their identity.
  • The Military Lending Act, which caps the annual percentage rate at 36% for covered borrowers.

(You’ll find more information about these and other laws in the article Consumer Protection Laws.)

Getting Help

If you have a problem with a pawnshop, see Finding Legal Help for Consumer Issues to learn where to make a complaint.

If a pawnshop loses, damages, or sells your item before you can reclaim it, and won’t compensate you, consider talking to a lawyer to learn about your options.

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