How Does Pawn Work?

A pawnbroker is a business that offers secured loans to people, with items of personal property used as collateral. While many items can be pawned, pawnshops typically accept jewelery, musical instruments, home audio equipment, computers, video game systems, televisions, cameras, power tools and other relatively valuable items as collateral.

If an item is pawned for a loan, within a certain contractual period of time the pawner may redeem it for the amount of the loan plus some agreed-upon amount for interest. The amount of time, and rate of interest, is governed by law or by the pawnbroker's policies. If the loan is not paid (or extended, if applicable) within the time period, the pawned item will be offered for sale to other customers by the pawnbroker. Unlike other lenders, the pawnbroker does not report the defaulted loan on the customer's credit report, since the pawnbroker has physical possession of the item and may recoup the loan value through outright sale of the item. The pawnbroker also sells items that have been sold outright to them by customers. Some pawnshops are willing to trade items in their shop for items brought to them by customers.