How Do Pawn Shops Work?

by | Dec 30, 2007 08:00 PM ET
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Marshall Brain

Hi, I'm Marshall Brain. Have you ever been to a pawn shop? They can seem a little shady, but it turns out that pawn shops have a special set of laws that keep them in line. Pawn shops are specially licensed and they have to communicate with police every day to avoid the movement of stolen merchandise. When you pawn an item what you're doing is taking out a small loan. You leave behind something you own as collateral. For example, you might give the pawn broker your fancy thousand dollar watch and the pawn broker will give you a $200 loan.

30 days later, you have two options: you can either pay the pawn broker the interest on the loan, which is normally something like 22 percent every month or you can not pay the interest and let the pawn broker keep the watch. If the pawn broker keeps the watch, he's gonna turn around and try to sell it to get his money back. That makes any pawn shop feel like a dozen garage sales and a flea market all rolled into one. To learn more about this and thousands of other topics, come to howstuffworks.com.

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