the process of pawning and how it benefits both people
In: Economics
If you want to borrow money in a hurry, the pawn shop gives you a loan, you give them some item of value to hold on to. If you pay back the loan with the agreed upon interest, they give you your item back. If you don’t, they keep your item and can sell it to recover their money. If you pay it back, it benefits both people because they lent you money when you wanted it (fast), and they get paid some interest in exchange for that service.
So lets say I need some cash quickly and don’t have access to other means of credit. I take something valuable to the pawn shop, the owner ascertains whether my valuable is actually valuable, and for how much. I think when I pawned something back in college, I had the option to sell my item outright or to pawn it, in which case I’m loaned money for a period time (30 days, I want to say?) and when/if I pay that amount of money plus interest within the time frame, I get my item back. If I don’t, the shop keeps my item. The item is the collateral securing whatever amount of money I was given. If the loan is paid back, the owner benefits from making interest on the money loaned me. If I don’t pay the loan back, the owner benefits by getting something he can keep and sell to recoup the loan plus however much extra. I as the person pawning something because I have access to credit when I wouldn’t have otherwise due to lack of credit or bad credit.
Pawning an item, is essentially putting up collateral for a short term loan.
think about it this way. I want to borrow $50 from my friend. He says, OK, but I need to trust you’ll pay me back and thats hard, I don’t know if you will. How about you give me your Xbox, I’ll hold it, and when you can pay me back the $50 you borrowed (plus a fee/interest), and I’ll give you back the Xbox.
Essentially thats what a pawn is. You take out a loan, with collateral of some item.
Pawn shops also buy items directly from people, but despite what the TV pawn shows show you, nearly all of their business is in pawning items, not buying/selling.
Before banks and credit reports, pawn shops served as an easy way for people to borrow money. Let’s say you bring a gold watch to a pawn shop, they value it at $500… now you can borrow (up to) $500 from the pawn shop, and they hold onto your watch for you. When you have the money, you go back to the shop, pay the $500 (plus a fee), and collect your watch.
And if you never get the money, the have your watch, and after a certain amount of time, they are free to sell it.
I need cash but don’t have any.
I do have a tv I could live without. I can get a loan for the tv and I can pay it back next payday. Or I lose a tv but at least my rent is paid.
Pawn shop guy charges a fee in addition the loan and either keeps that or he has a tv he can sell to someone.
I give you an item worth $100. You give me $50 today and if I give you $60 within 2 months, I get it back. If not, you get to sell it for $100.
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