Pawnshops or pawnbrokers are individuals or businesses who loan money to people in exchange for valuable items which are used as collateral. Collateral-based items vary from jewelry, cameras, electronics, musical instruments, and more. The items offered up as collateral will be returned to the owner once the money that has been loaned is paid back in full with interest.

If the pawn loan does not re-pay the pawnbroker within the agreed-upon time limit, the pawnbroker can sell the item to another customer to recoup the money they loaned to the original customer. It is now law to present some form of identification when bringing invaluable items to a pawn shop. This is to prevent pawnshops from unknowingly accepting stolen items.

Many police departments advise burglary victims to visit their local pawnshops to see if they can locate their stolen items. In most cases, pawnshops are required to give a list of all newly pawned items and their serial number to the police. This will enable the police to determine if any of the items have been reported stolen.

The amount of time and interest rate that pawnshops offer to customers is governed by law and highly regulated. Pawnshops have the same licenses as banks. Unlike other lenders, pawnbrokers are not obligated to report defaulted loans on the customer's credit report.

As the item offered up as collateral for the loan is still in the possession of the pawnbroker, the pawnbroker will simply just put it up for sale to recoup their costs. Pawnshops also sell items that have been sold to them by customers. Some pawnshops even trade items in their shops for items brought to them by customers.

High-end pawnshops began to appear in the early 20th century and we are more commonly known as loan offices as the term "pawnshop" carried many negative connotations. These high-end pawnshops were often situated on the upper floors of office buildings and began to lend to upper-class white-collar citizens. These upscale pawnshops often accepted high-value items in exchange for short-term loans.

The loans were often used to deal with business revenue shortfalls and fiscal challenges.

Getting the loan

When an item is brought into a pawnshop the pawnbroker assesses the item based on its condition and marketability. The item will get examined for flaws, scratches, and damages. The pawnbroker also assesses the supply and demand of the type of item within the community.

If the pawnshop already has many of the same items, they will only accept the higher-quality versions, turn down the item or offer a low price. Pawnbrokers use various guidebooks, catalogs, search engines and rely on their own experience when assessing the value of items. Many pawnbrokers have trained in the identification of special stones such as diamonds or employ specialists to assist.

Customers have two choices when repaying a loan

1. Return to the pawnshop to repay the loan amount with the interest before the agreed-upon deadline and get to take home the item offered up as collateral.

2. Don't return to the pawnshop and the item becomes the property of the pawnshop. Besides losing your item, there are no other consequences.