Despite all the reality shows depicting pawn shops, many people still ask pawnbrokers, “How do pawn shops work?” There’s a simple way to explain how pawn shops work.
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Simple Answer:
A customer brings an item of value into a pawn shop to secure a loan based on the item’s appraised value. Yes, it’s that simple. When you pawn an item, you’re essentially using that item to get a loan. This loan will never affect your credit, because you’re using that item as collateral.
Pawn loans are the perfect financial alternative when you find yourself in need of quick cash. Banks just don’t offer small dollar loans like pawn shops. Payday lenders can leave consumers trapped in a debt cycle, and, if you default on a payday loan, you’ll typically damage your credit. Since pawn loans don’t affect consumer credit, there is never a possibility that your credit will be adversely affected if you don’t repay the loan.
Some More Details About How Pawn Shops Work
When you bring your item of value to a pawnbroker for a collateral loan – be it gold or platinum jewelry, diamonds or a Rolex watch – the pawnbroker will determine how much your item is worth. Once the value of your item has been established, the pawnbroker will work with you to determine the amount of money she is willing to loan you. Once you agree to that amount, you’ll receive a contract (varies by state) with all the information pertaining to your loan. You receive cash, and you leave your item in pawn. In other words, you leave the item with the pawnbroker until you repay the loan and redeem your item. If you don’t repay the loan, the pawnbroker will have to try to sell your item to recoup the money from your unpaid loan. Read more details about pawn loans in New York State by clicking here.
Once you repay your loan, your item is returned to you, and you have no further obligation to the pawnbroker. Since your item of value was used to secure the loan, your credit remains unaffected.