So you need some money. I get it, we all get it. The fact of the matter is that at some point we all get stuck in a scenario and need a little extra cash to get us by and that’s perfectly acceptable.
Now, one of the options open to you is to go to a pawn shop and try to make a loan on one of your valuable items.
However, what if they don’t offer you enough for the loan? Then what do you do?
Well the other options is that you can sell your item. In most cases a pawn shop will in fact pay you more for whatever it is that you have if you decide to sell it versus just making a loan on it.
Now at first that might not make much sense to you and I get that. However, let me explain why that is and when I’m done you will appreciate what is actually going on at the pawn shop and why it is that they can pay you more for something when you just sell it outright versus making a loan against it.
Why Selling Pays More
Okay, let’s take an easy example that we are just going to make up.
Let’s say that you have a gold ring and if melted, it would be worth approximately $150 in raw metal value.
Now then, you go down to your local pawn shop with you ring and ask for a loan against it. You come to find out that they are able to offer you $100 for a loan against the ring – which is a very reasonable offer and here’s why.
You see, when people make loans against items, they don’t always come back to get them. That’s just the cold hard truth of the matter.
But, there’s a period of time that a pawn shop has to wait before they forfeit your item. That time varies state by state but in most cases it’s somewhere between 3 and 4 months. Let’s just say 4 months for this example.
So you’ve made a $100 loan on a ring that’s worth $150 and the interest fee for that loan is $9 a month. 4 months go by and you’ve forgotten to pay the interest on the ring or redeem it.
At this point the pawn shop now has to forfeit the loan and find a way to get it’s money back – however that amount is no long just $100.
You see, that $9 interest fee every month get’s attached to the cost of the ring so by the end of 4 months, there’s an addition $36 cost to the ring.
The pawn shop now has $136 into a ring that’s worth $150 and if that weren’t enough, they also have to pay an addition 5-10% to have the ring melted down and refined. In other words, they will have about $145 into a $150 ring leaving them with a $5 profit.
But What About When You Sell It
Now on the other hand, when you just outright sell the ring, they aren’t going to have to worry about the interest fee building up month after month and driving the cost of the ring up for them.
Instead, the cost of the ring will be whatever they pay for it and that’s it.
So, in this scenario they will be able to pay you a little more for your $150 ring and still walk away with a better profit than if you had just made a loan against it.
In fact, in this example they made you a $100 loan but they may offer you up to $125 on a buy for the ring – which is automatically 25% more than you would have gotten if you had just made a loan against it instead.
So The Bottom Line is…
So the bottom line here is that when a pawn shop buys something instead of just making a loan against the item, the item in question often ends up costing them less even if they pay you more for it initially.
Because of that there is an incentive for a pawn shop to encourage you to sell your items and that do that by simply offering you more money for them.
In the end you get more money, they get a higher profit margin and there isn’t the hassle of having to store and secure the items for months while they wait for you to ‘Maybe’ come and pick it up.