Pawn Broker

What is a pawn broker?  The definition is “a small lender who lends money at a high interest rate and holds some of the borrower’s personal goods as collateral to be sold to the public in the event of default”.  Basically, a pawn broker is a provider of short-term loans for those in need of quick cash who are willing to pay an interest rate generally much higher than market rate.

The pawn broker will appraise the item or items brought in by the borrower as collateral and determine how much they would be able to resale these items for in their storefront.  Typically, they will offer 50-60% of this amount as a loan to the individual wishing to “pawn” their items.  Provisions will be made for repayment of the short-term loan (usually somewhere between 30 and 90 days), and should the individual not repay his or her short-term loan within the designated period (plus a short grace period, during which there are usually penalty charges incurred), the item or items offered as collateral become the property of the pawn broker.

The pawn broker will take items pawned for short-term loans that have been defaulted on and turn around and sell them in their storefront operation, providing such items at a lower cost to the public than a standard retail store.

Why would someone go to a pawn broker to receive a short-term loan instead of a standard lender, like a bank?  Often, those who need short-term loans either do not qualify for a standard loan or are in need of immediate cash and cannot spend the time waiting for an approval from a bank.  Others are return customers, often pawning the same item or items multiple times to receive a short-term loan, perhaps in advance of their paycheck.  Maybe a bill has come up unexpectedly (car repairs or medical bills), and the borrower needs to pay them off quickly.

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