Assessment of items
The pawning process begins when a customer brings an item into a pawn shop. Common items pawned or, in some instances, sold outright by customers include jewelry, electronics, collectibles, musical instruments, tools, and, depending on regulations, firearms, gold, silver, and platinum, which are often purchased, even if in the form of broken jewelry of little value. Metal can still be sold in bulk to a bullion dealer or smelter for the value by weight of the component metals. Similarly, jewelry that contains genuine gemstones, even if broken or missing pieces, have value.
The pawnbroker assumes the risk that an item might have been stolen. However, laws in many jurisdictions protect both the community and broker from unknowingly handling stolen goods. These laws often require that the pawnbroker establish positive identification of the seller through photo identification (such as a driver's license or government-issued identity document), as well as a holding period placed on an item purchased by a pawnbroker (to allow time for local law enforcement authorities to track stolen items). In some jurisdictions, pawnshops must give a list of all newly pawned items and any associated serial number to police, so the police can determine if any of the items have been reported stolen. Many police departments advise burglary or robbery victims to visit local pawnshops to see if they can locate stolen items. Some pawnshops set up their own screening criteria to avoid buying stolen property.
The pawnbroker assesses an item for its condition and marketability by testing the item and examining it for flaws, scratches or other damage. Another aspect that affects marketability is the supply and demand for the item in the community or region.
To assess value of different items, pawnbrokers use guidebooks ("blue books"), catalogs, Internet search engines, and their own experience. Some pawnbrokers are trained in the identification of gems, or employ a specialist to assess jewelry. One of the risks of accepting secondhand goods is that the item may be counterfeit. The customer can either sell the item outright if, as in most cases, the pawnbroker is also a licensed secondhand dealer, or offer the item as collateral on a loan. Most pawnshops are willing to negotiate the amount of the loan with the client.
Determining amount of loan
To determine the amount of the loan, the pawnshop owner needs to take into account several factors. A key factor is the predicted resale value of the item. This is often thought of in terms of a range, with the low point being the wholesale value of the used good, in the case that the pawnshop is unable to sell it to pawnshop customers, and they decide to sell it to a wholesale merchant of used goods. The higher point in the range is the retail sale price in the pawnshop.
In determining the amount of the loan, the pawnshop owner also assesses the likelihood that the customer will pay the interest for several weeks or months and then return to repay the loan and reclaim the item. Since the key to the pawnshop business model is earning interest on the loaned money, pawnshop owners want to accept items that the customer is likely to want to recover, after having paid interest for a period on the loan. If, in an extreme case, a pawnshop only accepted items that customers had no interest in ever reclaiming, it would not make any money from interest, and the store would in effect become a second-hand dealer. Determining if the customer is likely to return to reclaim an item is a subjective decision, and the pawnshop owner may take many factors into account.
In some countries such as Sweden, there is legislation to prevent the pawnbroker from making unfair profits (usury due to financial distress or ignorance of the customer) at the expense of the customer by low valuations of their collaterals. It is stated that the pawnbroker may not keep the collateral but must sell them at public auction. Any excess after paying the loan, the interest and auction costs must be paid to the customer. If the item does not fetch a price that will cover these expenses the pawnbroker may keep the item and sell it through other channels. Despite this protection, the cost for the customer to borrow money this way will be high, and if they cannot redeem the collateral it would in many cases be better to sell the goods directly.
Inventory management
Some stores slim down inventory by selling items to speciality retailers. Some pawnshops sell speciality items online, on eBay or other websites.
Another growing trend in the industry is vehicle pawn or auto pawning. This form of pawnbroking works like a traditional pawn loan, however, these stores only accept vehicles as security. Many stores are also accepting "Title Loans", where a customer can pawn the ownership or "Title" documents of their vehicle. This essentially means that the pawnbroker owns the car while the customer continues to drive it, and the customer regains ownership once they pay back their loan.
Auxiliary operations
While the main business activities of a pawnshop are lending money for interest based on valuable items that customers bring in, some pawnshops also undertake other business activities, such as selling brand-new retail items that are in demand in the neighborhood of the store. Depending on where a pawnshop is located, these other retail items may range from musical instruments to firearms.
Many pawnshops will also trade used items, as long as the transaction turns a profit for the pawn shop. In cases where the pawnshop buys items outright, the money is not a loan; it is a straight payment for the item. On sales, the pawnshop may offer layaway plans, subject to conditions (down payment, regular payments, and forfeiture of previously paid amounts if the item is not paid off).
Other activities carried out by pawnshops are financial services including fee-based check cashing, payday loans, vehicle title or house title loans, and currency exchange services.
Upscale pawnshops
Upscale pawnshops began to appear in the early 20th century, often referred to as "loan offices", since the term "pawn shop" had a very negative historical reputation at this point.[7] Some of these so-called loan offices are even located in the upper floors of office buildings. The modern euphemism for the upscale pawn shop is the "high-end collateral lender",[8] lending to upper-class often white-collar individuals, including doctors, lawyers and bankers, as well as more colorful individuals like high-rolling gamblers.[9] They are also interchangeably called "upscale pawnshops" and "high-end pawnshops" due to their acceptance of higher value merchandise in exchange for short-term loans. These objects can include wine collections, jewelry, large diamonds, fine art, cars, and unique memorabilia. Loans are often sought to deal with business revenue shortfalls and other expensive fiscal issues.[10] Upscale pawnshops have also been featured in reality television.
Image Building
Pawnbrokers may rely on multiple strategies to improve the general imagery of pawnbroking. These strategies include philanthropic behaviors, relationship marketing, local value advocacy, and community building.[11]
Industry
In the United States, there are over 11,000 pawnbrokers and an industry revenue of $14.5 billion.[12] The US industry serves 30 million customers.[13]
