How do pawnshops work?

Q&A: Pawn shops

Q: How does a pawnshop loan work?

A: Pawnbrokers lend money on everything from gold jewelry to musical instruments, TVs, tools and household items. If you bring in a saxophone, for instance, you'll receive a cash amount equal to a percentage -- usually up to 50 percent -- of what the pawnbroker believes the sax would bring if sold. A typical loan is small, averaging $75 to $100.

Q: What are the fees?

A: Pawnbrokers charge varying interest and service fees based on the loan amount and how long it's held. In California, for example, a $100 loan due in 120 days would be charged a $5 processing fee and $15 in interest charges. Note: The annual percentage rate on a 120-day loan, which is the typical length, is 61 percent

Q: Why go to a pawnbroker for a loan?

A: Pawnbrokers are a fast, convenient, confidential way to borrow money. Unlike a bank loan, a short-term cash loan can be given with no credit check or legal consequences if the loan is not repaid. If you don't repay, the item you pawned becomes property of the pawnbroker.

Q: How often do people lose their merchandise?

A: On average, about 15 percent to 20 percent of all pawnshop loans are not repaid.

Q: How can I be sure pawnshop goods aren't stolen?

A: Less than half of 1 percent of goods are identified as stolen. Pawnbrokers are trained to look for stolen property and work closely with local law enforcement to prosecute perpetrators. A customer must provide personal identification and a complete description of the merchandise. The description is transmitted to law enforcement, decreasing the likelihood that a thief would bring in stolen merchandise.

Q: Is pawnbroking a "bad times" industry?

A: Pawnbrokers do far better in good times. In hard times, customers move away to find employment, have less ability to repay their loans, and the value of all merchandise goes down.

Q: Who is the typical pawnshop customer?

A: The typical loan customer is employed, lives within one mile of the store and needs short-term cash for unexpected bills. The typical retail customer is a bargain hunter.

Source: National Pawnbrokers Association

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)