Pawn Shop 101: What to Know Before You Pawn

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Published July 22, 2011

| FOXBusiness

Its no secret that when times are tough, more people turn to pawn shops to get cash when they need it. But if youre considering pawning an item, there are some important questions you should ask first. We checked in with experts to find the top seven things you should ask before you turn your item into the brokers.

Ask: What the monthly interest rate? What are the fees?

A lot of times people will ask about the interest rate, but forget about the fees, says Lee Josephson, owner of Boca Raton Pawn in Boca Raton, Fla. If they see a place that only charges 2% interest they wont realize that the place also charges a ticket fee, a storage fee, and more.

Josephson warns that the fees can add up to be a lot more than people are expecting, and says that paying a few percentage points more in interest is worth it if there are no fees attached.

Another hidden fee to ask about is the lost ticket or lost receipt fee. Many pawn shops charge $20 if you cant produce your ticket when you come to pick up the item, Josephson says. Be sure to check on the shops policy, and make sure you dont lose your ticket.

Although the interest rate for pawned items varies on a shop-by-shop basis, it can be as much as 25% per month, depending on the maximum rate set by the state. Typically, the smaller the value of the loan, the higher the interest rate.

It only makes sense, says Josephson. If the loan is $3,000, 2% interest will yield a lot more than 2% interest on a $20 loan.

Ask: How long have you been in business? Where are you located?

You really need to ask them how long theyve been in business, and how long they have been at that location, advises Tom Haas, CEO of PawnMart. If this place is fly-by-night, what happens if they close?

Haas says that if a place closes while your item is pawned, it can be next to impossible to retrieve it or the money you may be owed. Its best to look for places that have been established for several years and have a relationship with people in the community. If possible, its not a bad idea to look for places that have multiple locations, as its less likely that a chain will close down multiple locations, and chains tend to have more financial stability.  

When it comes to location, you have to feel comfortable, says Haas. Ive seen some pawn shops in areas where everything from the neighborhood to the appearance of the store really cause me to pause. Make sure youre pawning your items in a clean and well-lit environment.

Ask: Do you have insurance?  Do you require the proper paper work?

If the shop gets broken into, what happens if your stuff gets stolen? says Haas. If your item goes missing, the pawn shop needs to be fully insured.

Only a fully-insured pawn shop guarantees a patron the ability to receive payment for an item if something happens to it. A written statement of the pawn shops insurance policy should appear on the paperwork youre given when you sign.

There will be cases where you lose a persons merchandise to burglary, and you have to make good, says Haas. We guarantee our customers will get something of equal or greater value. Anyone can apologize, but its how you deal with it that sets pawn shops apart. 

Although pawn shop laws vary from state to state, all shops require some form of identification when someone is pawning an item, according to Josephson. In Florida, customers must offer their thumb print and a copy of their drivers license. If a shop doesnt ask you for identification and request that you fill out the proper paperwork, its a red flag that the shop might not be reputable.

Youre supposed to get a copy of all the documentation they required, as well as a detailed description of the items you pawned and their value, says Josephson. Check to make sure you have everything before you leave.

Ask: How much will you give me?

Be wary of a shop that is trying to convince you to take out the maximum you need, says Josephson. If you only need $2,000, but the pawn broker is pushing you to take out $5,000, then all they want is to collect on additional interest payments from you.

If you take out more than you need, Josephson says, its easier to default. Some pawn shops are looking to bury you in debt so you cant come back to retrieve your item. If possible, look for a pawn shop that keeps up with current gold and silver prices.

We look at the prices of gold and silver throughout the day, and if prices are up, we adjust our prices to give our customers more, says Haas. But if prices are going the other way, we lower them. Its fair, and people need to look for fair, not someone who pushes them into taking a certain figure.

Ask: Where do you keep my stuff?

If youre pawning a boat or a car or something of substantial size, you need to make youre your items are stored in a nice warehouse thats enclosed and not exposed to the elements, says Haas. That warehouse needs to be insured as well.

Even if youre not pawning a large item, its still good to know where your item will be kept, Haas says.

We clean our items, and keep everything shrink wrapped in our stock room, says Haas. Even electronics can be sensitive to things like dust, and its nice to keep them enclosed. Its also nice to be able to pick up your item once its cleaned and wrapped. Its like getting a present.

Ask: Will you send me notifications?

Some people are not best time managers, and theyll get confused as to the date their payments are due or when they should come pick up their items, says  Haas. We call them to remind them, and most good pawn shops do that as a courtesy.

Haas says that PawnMart spent more than $200,000 last year on first class mail to clients, letting them know when payments are due. Its the only way to make sure that someone isnt defaulting on their loan because they simply didnt remember when to pay.

This way if someone forfeits out, its in our system and we can call them and reactivate the loan, or they can take possession of the item, says Haas.

Ask: Will you take a look at my appraisal?

Although sometimes appraisals are a difficult thing to go by, they can give you a good base line for price and quality of an item, says Todd Hills, CEO of Pawngo in Denver.

Appraisals are most often used in the case of insurance loss or to get an idea of retail value, but there is a lot of great information on the appraisal which can be helpful to us, says Hills.

For jewelry items, appraisals will describe the quality and clarity of the diamond, the type of gold used in the setting, and the total carat weight of the stones. In the case of an item of art, appraisals can be used to determine age of the artwork, the artist, and the quality of the frame.

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