Reality television has changed public perception of a lot of things, from duck hunting to self-storage to toddler beauty pageants. But no industry has seen its image shift quite like the pawn industry. Where once the neighborhood pawn shop was perceived to be the height of seediness, a better understanding of what pawning is and how it works has added an air of legitimacy to the centuries old enterprise.
And of course seedy things probably still happen in pawn shops, but it is, ultimately, just a business – one where goods and money are exchanged in both directions.
The primary function of the pawn shop is the distribution of small, short-term loans, backed by real items as collateral. The basic process looks a little like this:
- I need $100. (Right now.)
- I bring in a nice camera worth more than $100.
- I get my loan and a date by which the loan needs to be repaid.
- If I repay the loan (with interest) I get the camera back.
- I don’t, the shop sells the camera to recoup the lost loan.
Pawn shops also buy items that they think they can sell later for a profit. So I could just sell them my camera and keep the $100, while they turn around and try to sell the camera for a profit.
Because people are generally underselling their items to the store, consumers can find a good number of deals at pawn shops. That said, pawn shops aren’t retailers and buying anything secondhand (or third or fourthhand) comes with risks. Unless you feel very confident in their quality and durability, don’t buy the following items at a pawn shop:
- Computers and laptops. A computer is often one of the most valuable non-necessities a consumer owns, so it’s no surprise that someone in a dire financial situation may be forced to pawn their computer. The pawn shop will attempt to verify that the computer works, but beyond that they can’t really know what shape the device is in or how well it will work. So while you may be able to get a great deal on a computer, the risk of buying a junker is likely too high.
- Video game systems and video games. Just like computers, video game systems are valuable, but breakable. Even new, unused systems can be buggy or occasionally defective, so buying a non-certified, used system is a very risky investment. The same can be said for video games – you’re better off going to a specialized secondhand game store.
- DVD and Blu-ray players. Are you sensing a theme here? Technology is always a gamble at a pawn shop. Of course you can still luck out and grab something extraordinarily cheap that lasts, but that’s pretty difficult to gauge and frankly DVD and Blu-ray players aren’t exceptionally expensive to begin with.
- Cell phones. Cell phones are one of the most commonly stolen items. That’s why a good number of pawn shops don’t carry them. Only buy a cell phone at a pawn shop if the shop is reputable and you understand what you’re buying.
- Jewelry and watches. The trouble with jewelry and watches is simply how often cheap knock-offs get sold as legitimate pieces. If you have the experience and know-how to be certain that you’re buying the real deal, go for it. Otherwise, be very wary of buying bling at the pawn shop.
And if you find yourself taking out repeated short-term loans from the local pawn shop consider speaking to a financial counselor. Chances are good there are issues with how to manage your money that we might be able to help you correct.