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How Does Pawnbroking Work

by Jim ONeil on February 21, 2011

in unsecured loans

Traditionally, pawnbrokers have had a bad reputation, portrayed as individuals who prey on those who are destitute or desperate. These days, however, pawnbroking in countries like England is big business. As of 1980, only 50 pawnshops remained in the UK but there are now nearly 2,000. They have moved from dark alleys into primary locations in many cities and towns.

Some pawnbrokers, like Mays, have been around for nearly 200 years and have multiple locations. The stores feature mirrored walls, thick carpets, and professionally dressed staff who are welcoming and discrete. The respectable image is not unintentional, it is a deliberate action. Pawnbrokers like Mays want customers to be comfortable and the deals to be mutually beneficial.

To pawn an item, a consumer takes it to the store and agrees to a price and a loan value. The pawnbroker holds the item but the consumer still retains ownership of it. Cash is provided to the consumer,

who then must repay the loan amount plus interest in order to get the item back within the agreed upon time. If the consumer does not want the item back, he or she does not repay the loan and the item is kept by the pawnbroker.

This is an expensive method of borrowing money and the transaction has remained true to its historical roots. Pawnbrokers like Mays provide loans featuring seven month terms and interest rates that vary with the size of the loan. In most cases, consumers pay off the loan early, resulting an average loan period of three months.

The National Pawnbrokers Association reports that 80 percent of pawnbroker customers return for another transaction. Pawnbrokers provide a fast way to get needed cash and the high interest rates they charge do not deter customers who cannot obtain credit from banks. Items commonly pawned include Rolex watches, family heirlooms, and valuable jewels.

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