How Wealthy People and Entrepreneurs Use Pawn Shops

Pawn shops have surged in popularity over the past years due to a tighter credit environment, the popularity of TV shows such as Pawn Stars and Hardcore Pawn, and of course, the ever-growing need for cash.

Today’s pawn shops might surprise you. They aren’t the dingy brick-a-brac stores of the old days. Pawn shops from Boca Raton to Beverly Hills have received a reboot, and many have become high-end collateral lenders catering to the tastes and needs of the cash-strapped rich — wealthy people with plenty of assets, but short on liquid cash.

Here’s a glimpse at how wealthy people are using pawn shops to accomplish their goals, according to the BusinessInsider.com article, “Here’s How Rich People Are Using High-End Pawn Shops.”

Appeal of the pawn loan

A CEO of a high-end online pawn shop explained that his clients come to him instead of seeking alternate forms of financing, such as a bank loan, for three main reasons: The transaction is faster, there’s no material credit risk — many pawn shops loans do not require a credit check — and in many cases the loan is cheaper than selling the valuables outright. With certain assets, you lose 30% of the value when you sell. Savvy clients know that, and opt for a pawn loan instead.

Self-employed business owners are one group who are increasingly turning to pawn loans, especially if they have irregular cash flows. These are people who are looking for business loans for opportunistic reasons — for example to invest in more products or expand warehouse footage — and they need liquidity to do it. But banks don’t like irregular cash flows, so a pawn loan may suit their needs. Property developers and people working in sports or media with short-term contracts are other groups who may turn to pawn loans. Whatever the reason — and pawn shops usually don’t ask — pawn loans have become an increasingly popular and effective way to get cash, without having to sell a valued item.

How they work

If you’re thinking of pawning an item instead of selling it, here’s how a pawn loan works. When you bring in a piece of jewelry or other item to the pawn shop, the property is evaluated by a professional appraiser. The appraiser then gives you a price for your item, the interest rate on the loan and other terms and conditions of the loan.

In the case of coins and jewelry, the value is based on standardized industry factors, such as karat weight, rarity and condition. The pawnbroker will then offer a fixed-rate loan based on the agreed upon value, for a period of time, usually 30 days.

If you agree to the price and terms of the loan, you will receive cash in the amount of the agreed upon loan. The item then becomes collateral against the loan. You’ll receive a pawn ticket with your name and address, a description of the pawned item, the loan amount and the maturity date. The local police will also get a copy of the receipt. Pawn shops vary, but most pawn loans are for two or three months, along with a grace period. Once the loan, plus any interest, is paid back, you’ll receive your item back.

What to pawn

Pawn shops are known for selling and pawning a wide array of items, from guitars to gold necklaces, but there are certain items which generally demand higher estimate prices: Gold in any form — coins, necklaces, bracelets, rings, even dental gold. That old, unused sterling silver flatware set is also likely to earn you some nice cash.

Platinum and loose diamonds are also usually on the higher side, depending on the weight and condition of the diamond. Other items to consider selling or pawning are watches (especially Swiss), certain gemstones, estate jewelry, antiques, and heirloom jewelry. Of course, the estimate price will depend on the condition and market value of a given item.

Before you pawn

Do your research before buying, selling or entering into any agreement with a pawn shop. It’s a good sign when a shop is a member of the National Pawnbrokers Association, and its appraisers are educated by the Gemological Institute of America (GIA), the world’s foremost authority on diamonds, colored stones, and pearls.

Do some research ahead of time, ask plenty of questions and make sure you agree to the appraisal estimate, loan price and terms and conditions of the loan before agreeing to the loan. And remember, the highest loan price doesn’t necessarily make the best deal.