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How Pawnshops Work


Smart Business
When they first came out in the mid 1980s, VCRs were pretty expensive. Today, you can buy a used one for less than $40!
When they first came out in the mid 1980s, VCRs were pretty expensive. Today, you can buy a used one for less than $40!

­From the pawnbroker's standpoint, a pawnshop is simply a business. According to Ausley, the idea is to "loan out about one-third of what I think I can get for the item when I sell it." If an item is priced at $100 new, and the pawnbroker thinks it will sell for $60 used, then the loan amount would be $20. The pawn ticket for this item would ask for $24.40 (2 percent interest plus 20 percent in other fees) in 30 days.

Part of the art of being a pawnbroker is having a sixth sense about how much things are worth both new and used. "When you are starting out, there are books you can use, but those books are no good," says Ausley. As an experienced pawnbroker, Ausley gets most of his information about prices by walking around stores and looking at catalogs, and also by talking with other pawnbrokers. The real experience comes from buying and selling things every day. He's been in the business for 15 years.

Joining a rock band? Before you spend money on a new Fender electric guitar, check the instrument supply at your local pawnshop.
Joining a rock band? Before you spend money on a new Fender electric guitar, check the instrument supply at your local pawnshop.

Electronics are a special problem. The prices for new electronics are falling constantly, meaning that used prices are also falling. When the economy is down, lots of people are pawning things and not many people are buying. This helps to explain the high interest rates to some extent. The pawnbroker has real cash going out the door when he makes a loan, but has only the used merchandise to sell to recover that money if the loan is not repaid. Used merchandise is not the Rock of Gibraltar when it comes to investment vehicles.

"An ideal customer is someone who comes in and pays the interest every 30 days, or picks up their item every month and repawns it if necessary," says Ausley.