Pawn shops are a staple of almost any major town. But what exactly makes them so important, and why are they so popular? There are shows about them, stories about then, and they seem to be a fundamental part of society. From antique finds to amazing bargains, a pawn shop can have anything and everything you could possibly imagine. However, pawn shops are far from just another shop.

How Pawn Shops Make Money

Contrary to some misconceptions, pawn shops are a legitimate business that combines buying and selling goods with the opportunity for collateral loans.

Personal Loans

Pawn shops do most of their business through providing personal loans. This is not like a bank, where people apply for a loan based on credit scores and financial ability. Instead, they must provide the pawn shop with something of value they can borrow against. This is the pawn. 

The item is required to be of equal value or more than the amount borrowed. The pawn shop then takes possession of the item, a contract is signed, and the money is given.

In order to get their item back, there is a finite amount of time to pay back the money borrowed, plus interest. This is typically thirty days. 

People can sometimes make a deal with the pawn shop to pay the interest and then pay the rest at a later date. If they cannot pay back the loan in time, the pawn shop gains custody of the item. They can then sell it in their shop to recoup the loan. There is no credit or debt collectors. The item is theirs to do as they want, and the customer is free of paying back the loan.

Pawn shops are not in the business of buying and selling stolen property. They must comply with government rules and regulations when buying and pawning items. This includes filing reports and making sure to have a record for everyone who they take property from. 

If a customer gives a pawn shop stolen items, they are subject to prosecution. The pawn shop can also sue the customer in small claims court for any financial loss that they incurred.

Buying Merchandise

In addition to the pawned items that get left behind through default, pawn shops also buy items. This can be through going out to shops and sales, or by people coming in. Customers don’t have to pawn the item if they don’t want it back. Instead, they can simply bring in something they want to sell and get the money for it.

This can be anything from technology to musical instruments, antiques and everything in between. If the store is interested, they will make an offer that they think is fair based on what they think they can make from it. Depending on the store, a customer may even be able to sell gold and silver to them.

Selling Merchandise

Whether it is the pawned items that were unclaimed, or the items that have been bought, the pawn shop makes money by selling merchandise. Over eighty percent of pawns are claimed and the items are returned. That means they require selling merchandise to make a profit other than the interest from the loans.

Customers can go into a pawn shop and find a little bit of everything. It is a little like going to a garage sale and an antique shop all rolled up in one. And the business model of a pawn shop is to get a fair price, but not to gouge the buyer. This is because most everything is used, and many things require research to find out the resale value of an item.

Conclusion

Whether you are interested how to start a pawn shop, or just curious about how they operate, there is no denying the possibility to make money. Adding the loan aspect to the business model opens up a whole other way to make money beyond your normal shop. This will keep pawn shops in business for years to come.