How Pawn Shops Work


A pawnbroker makes loans on personal property left as
collateral. The property can be redeemed when the loan
plus interest is repaid.


The interest rates for pawnshops, which may be regulated
by state or local laws, may range from 5% to 6% a month.
Loans can usually be renewed, but only if the interest for
the original period has been paid.


Pawnbrokers will accept a variety of personal property as
collateral. Usually, items that are small or of modest
value (jewelry, clocks, computers, camcorders, silverware,
etc.) Brokers won't lend more money than they think they
can get if the pledged item is not redeemed and has to be
sold.


When a pledged item is not redeemed, brokers are required
to notify pawners that the loan period has expired and to
give them a final opportunity to redeem their personal
property before the broker has the right to sell the
item. In some jurisdictions, brokers may keep all the
money received from the sale of the unredeemed pledge. In
other cases, the broker may only keep the original loan
and any interest due, but must turn any excess over to the
pawner.


In many states, pawnbrokers are required by law to file
with the local police a daily list of items that have been
pledged. They must report and give a description of the
object along with serial number and other points of
identification.


This gives the police an opportunity to check these pledge
items against any list of reported stolen items. In
somebody buys a stolen item from a pawnbroker, it must be
returned, and the broker must refund the purchase price to
the customer.


DEBT LIMIT. Installment debt should not exceed 10% of
take-home pay. A debt ratio of 20% indicates trouble
ahead. However, when computing for your debt ratio, you
must not include mortgage payments in the amount of debt.

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