How Does a Pawn Work? (FAQ’s Answered!)

Most people out there have a basic idea about how a pawn shop works—it’s a place of business where you exchange valuable objects for cash. Beyond that, though, there tends to be a lot of confusion. What kinds of merchandise are pawn shops interested in? How much money can you expect to get? Does it require a credit check? Isn’t it hard to get your stuff back if you want to? And aren’t those places illegal, anyway?

Misunderstandings about these issues discourage a lot of people from visiting a pawn shop. That’s too bad—there are quite a few people who could benefit from the convenient services that only a well-run pawn shop can supply. To provide our customers with clear, accurate answers to their common questions, we’ve put together this list of Frequently Asked Questions.

What Is a Pawn Loan?

It’s a type of short-term loan that is granted to an individual in exchange for a certain item. The customer gets cash for their merchandise and is given a specific period of time to repay the loan in order to reclaim their goods.

Are Pawn Loans Legal?

Yes. Pawn shops and their services are strictly regulated by federal, state, and local laws.

Federal laws that apply to pawn shops include the following:

  • The Patriot Act
  • Equal Credit Opportunity Act
  • Truth in Lending Act

Also, pawn shops that handle firearms must follow rules enforced by the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF).

What Is the Process of Getting a Pawn Loan?

Here’s the simple version:

(1) You walk into a pawn shop with your item—for the purpose of this example, let’s say the item in question is a watch.

(2) The pawn shop appraiser examines the watch to determine its value.

(3) The appraiser makes a cash offer for the watch.

(4) You either accept the cash and let the shop take the watch OR reject the cash and keep the watch.

Gem Pawn watches

What Types of Things Are Accepted by Pawn Shops?

In general, pawn shops accept a very wide variety of items. These include but are not limited to the following:

  • Jewelry (rings, necklaces, bracelets, etc.)
  • Gold & Silver
  • Diamonds
  • Watches
  • Luxury handbags
  • Automobiles
  • Motorcycles
  • Laptops
  • Musical instruments
  • PlayStations
  • TV screens
  • DVD players

What if I Have Bad Credit?

That’s fine. There is no credit check involved in the pawn loan process. The shop has absolutely no need to look at your credit score. All you need is an item that the pawn shop is willing to offer money for.

How Long Does It Take to Get Paid for My Items?

It’s instant! Usually, the pawn shop gives you the cash right then and there.

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Does the Pawn Shop Keep My Things Forever?

No. The shop does not buy your items when it gives you cash at the end of the transaction. Instead, the shop gives you a short-term loan. You’re still considered the owner of the item.

How Much Money Will I Get for My Things?

That depends on the appraised value of the item. Keep in mind that you will probably get less than the market value of your merchandise. Why is this? As we’ve said, the pawn shop doesn’t buy your things—it just gets to keep your stuff for a while. Also, the pawn shop has expenses associated with the storage of all their customers’ things.

Anything in damaged or defective condition will be appraised at a lower value than identical things in good condition.

Do I Need to Show Identification?

Yes. You need to be able to show your government-issued photo ID to the workers at the pawn shop. This is government policy. The purpose of this policy is to keep people from pawning stolen or illegal goods, as well as to protect the customer’s privacy and their collateral.

How Long Is the Pawn Loan?

It depends. Usually, pawn loans are set by the month—30 days, 60 days, and so on. At the shop, the pawnbroker will tell you the exact length of your loan.

Musical Instruments

Do You Have to Pay Interest on the Loan?

Yes. In the state of New York, the law sets a strict limit on pawn interest rates: It’s only 4% per month.

What Happens to My Stuff While It Is at the Shop?

The pawn shop carefully stores it in a vault for safekeeping for the length of the loan period. The vaults used by GEM Pawnbrokers are outfitted with high-quality security systems to ensure their safety.

What Is a Collateral Loan?

This is just another term for a pawn loan. The item that you give the pawn shop is often referred to as collateral.

How Do I Get My Merchandise Back?

You simply have to repay the principal of the loan (the original amount) PLUS the interest that has been added. You must do this before the loan ends.

What Happens if I Don’t Repay the Loan?

If you fail to repay the money before the deadline, then you have defaulted on the loan, meaning you didn’t pay it off in time.

What Happens to My Things After I Have Defaulted?

The pawn shop becomes the legal owner of the items, and you lose all rights to it. Your item(s) will be removed from the vault and put on sale in the publicly accessible area of the pawn shop.

Does Defaulting on a Loan Hurt My Credit Rating?

No. When you default on a loan, you will lose ownership of the item of yours that the pawn shop has in its possession. However, the default will not be reported to credit agencies, and it cannot affect your credit score.

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Can I Get an Extension on the Loan?

Yes. This is called a renewal. All you have to do is pay the interest added on the loan so far. You do not have to pay back the original loan value to get a renewal. When you get a renewal, you basically create a brand-new loan contract, so everything starts fresh.

How Often Do People Repay Their Loans?

The majority of pawn shop customers eventually repay the loan and reclaim their item.

What’s the Difference Between a Pawn Loan and a Bank Loan?

Your ability to get a bank loan is based on your credit score. This is a serious problem for people with bad credit, who are routinely denied loans because they are usually judged to be at high risk for default.

With a pawn loan, however, your credit score has nothing to do with it. The only thing that matters is the value of the item or items that you bring into the shop.

Defaulting on a bank loan will damage your credit and lead to harassment from debt collectors. Nothing like this happens when you default on a pawn loan—the only negative consequence is the loss of the item that is already in the shop’s possession.


Do Pawn Shops Accept Stolen Items?

No. This is a very common misunderstanding about pawn shops—that they provide an easy way for criminals to profit from stolen goods. In reality, pawn shops refuse to accept things they know or suspect are stolen, and they try to keep illegally gotten items out of their inventory. Part of this means making the receiver of the loan show a valid photo ID.

What Kinds of People Go to Pawn Shops?

Everybody! People from all social classes and age groups visit pawn shops. GEM Pawnbrokers deals with customers ranging from college students looking to trade in their DVDs to families who need help with their huge estates. We can provide cash loans up to $1 million!

What Kinds of Professional Organizations Do Pawn Shops Belong To?

That depends on the particular pawn shop in question. You will find that pawn shops often belong to many business and financial organizations.

GEM Pawnbrokers is licensed by the NYC Department of Consumer Affairs. We also belong to the following organizations:

  • Brooklyn Chamber of Commerce
  • Queens Chamber of Commerce
  • Manhattan Chamber of Commerce
  • Diamond Council of America
  • Jewelers Vigilance Committee
  • Jewelers Security Alliance
  • American Numismatic Association
  • NYC Police Athletic League
  • Estate Jewelers Association of America
  • Gemological Institute of America Alumni & Association
  • National Association of Professional Appraisers
  • Society for Professional Watchmakers
  • New York City BID Association

Pawn shops like GEM Pawnbrokers also maintain relationships with local law enforcement, and any attempts to sell stolen merchandise are promptly reported to the authorities.

The post How Does a Pawn Work? (FAQ’s Answered!) appeared first on Gem Pawn Brokers.