How Pawn Shops Work

How Pawn Shops Work

posted in: Pawn Shop Tips | 0

If you have never dealt with a pawn shop before, you may be unaware of how a pawn shop works. You may even be making incorrect assumptions about pawn shops because the way the media perceives them is often in a dark light. The truth of the matter is that pawn shops are far from the scary. One way to describe a pawn shop is to refer to it as a permanent location for an ongoing garage sale. However, pawn shops are particularly unique because they also provide collateral loans. If you are confused, read on to learn about the different things you should know before visiting your local pawn shop.

Collateral Loans

The thing that pawn shops are known most for is the fact that they offer quick cash in the form of collateral loans. In other words, pawn shops provide cash loans that are secured by items of value.

How Do Collateral Loans Work?

Customers present an item of value to the pawn shop who then offers a loan to the customer based on a percentage of the items appraised value. The item is kept as collateral until the customer can repay their loan along with the agreed upon interest and fees. Once the loan and fees are paid in full, the item that was originally put up as collateral is returned to its owner.

If wondering about the interest rate that will be required on the loan, that will depend on the individual state where you are seeking the loan. It is safe to assume that interest charged on pawn loans will amount to a total that is less than what you would pay in late/overdraft fees if you weren’t able to pay a bill on time.

What is Required to Obtain a Pawn Loan?

If you are someone that has poor credit, you will be delighted to hear that pawn loans do not require you to undergo a credit check or require you to have a cosigner to obtain the loan. All you need to get a pawn loan is the actual item of value that you are putting up as collateral and proper identification.

What Happens When You are Unable to Repay Pawn Loans?

Unlike traditional bank loans, if you fail to repay a pawn loan, it won’t negatively impact your credit score. This is because the loan isn’t based on trust. Instead, it is based on collateral. Therefore if for some reason you aren’t able to repay the loan, the price you will pay is forgoing the piece of property that you put up to obtain the loan. When borrowers default on pawn loans and the item put forth as collateral is handed over to the pawn shop, the loan is considered to be paid in full, so that is the only the consequence.

Quick Cash

If you aren’t looking to take out a collateral loan from a pawn shop, you can opt for the option to sell your items to the shop for quick cash! If wondering how much cash you can get for your goods, that will depend on the item’s appraised value, condition, and ability to be resold. All items are also tested to ensure they are in working order so make sure the item is in good shape before taking it your local pawn shop to be appraised.



Many pawn shops like Eureka Pawn Shop & Trading Co. have other business elements like in-store and online retail sales. Therefore, if you are looking to nab a great deal on jewelry, instruments, power tools, collector’s items, sporting equipment or any other second-hand item, be sure to check out your local pawn shop.

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