Side view portrait of jeweler inspecting ring through magnifying glass in pawn shop

How Do Pawn Shops Work?

Have an item you don’t want? Don’t throw it away. Pawn shops will buy anything. Learn how pawn shops work.

A popular way for people to get access to short-term loans without the need for applications and credit checks is to use a pawn shop. But how do pawn shops work, and are they worth it? Or do they deserve their bad rap?

What is a pawn shop?

A pawn shop is a place where you can sell goods or take out a short-term loan, using items you “pawn” as collateral. Everyday items sold at pawn shops include electronics, jewelry, bicycles, or musical instruments.

How do pawn shops work?

Pawnshops are not just places to buy and sell second-hand goods. They are essentially personal loan providers that make money by providing personal loans (with interest) or by reselling items. 

If you wish to take out a short-term personal loan, you have to provide an item of equal value to use as collateral. The pawnshop can sell that item if you fail to pay back the loan. 

For example, you could take a TV into a pawn shop and receive $300. If you don’t pay $300 plus interest to get your TV back, the pawnshop can sell it to someone else and recover the costs.

Alternatively, you can simply sell the item and receive cash without the loan element.

Is a pawnshop the best place to sell unwanted goods?

There are pros and cons to using pawnshops to get a loan or cash advance. 


  • No credit checks required: Pawnshop loans are very informal compared to bank loans. The pawnshop won’t do extensive credit checks or even check your income because they have the collateral they need if you don’t pay them back.
  • Quick and simple: Another pro for pawn shops is that it’s quick and easy to go in and get the cash you need. You may have to do some negotiation, but you won’t have to fill out time-consuming forms detailing your financial history. You can get the cash the same day without that hassle. 


  • They can lead to a cycle of debt: Pawnshop loans have a bad rap because they can lead to a cycle of debt. They usually involve you throwing money at the loan to pay back the debt without getting closer to paying off the loan – leading you to rely on another loan. 
  • Interest rates are high: While many pawnbrokers will offer lower interest rates than payday loans, they are still typically high, making it tough to pay the loans back.
  • Loans are usually small: Most pawnshops will only offer small loans. According to the National Pawnbrokers Association, the average loan is just $150.
  • Loan terms are usually very short: Most pawnshops will only issue loans for a short period, usually 30 days which makes paying them back challenging. If you fail to pay within 30 days, you will lose your item because they’ll sell it to someone else. 

How to get the biggest payout

With pawnshops only handing out very small loans in most cases, you may need to be strategic if you want a bigger payout.

Some ways to get a big payout include:

  • Clean the items you want to sell: The pawnbroker will look more favorably on your items if they are clean and in good condition.
  • Remember to negotiate: Don’t take the first offer the pawnbroker makes. Many will try to low-ball you, and some haggling is expected. With some confidence and negotiation, you could increase your payout by 10-20% in some cases.
  • Do your research: Try to find a reputable pawn shop and look at what type of items they usually sell to see if you’re likely to get a reasonable price there. Anomalies are harder for them to sell. Also, look on second-hand sites such as eBay to see what similar items are selling for there. That will help you decide what the item is worth.
  • Be nice: Things can get a bit heated if the pawnshop tries to offer you way less than you think the item is worth. But it’s important to stay calm and pleasant with them. If the offer isn’t right and the pawnbroker isn’t willing to budge, be prepared to walk and find somewhere else. 

It’s important to know precisely how pawn shops work before using one. Many people benefit from using short-term loans that are quick and easy to take out. 

However, it’s essential to recognize that there are several downsides. It’s sometimes hard to pay back, and many people are in a cycle of debt or losing important items. A reputable loan from a bank or online personal loan provider is preferable in most cases. 

If you still need money and don’t want to use a pawn shop, consider an online loan from Jora Credit today.

How to Get Needed Cash Quickly

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