So this is a question that I see asked all the time and it never seems like anyone has a great response to it so I’ve decided to sit down and really dig into the question at hand.
Do pawn shops pay melt value? The answer is… Maybe.
Huh? I know, I probably just let you down or disappointed you but if you give me 5 minutes of your time I promise that you will walk away from this article with a much better understand of not just what pawn shops pay for scrap metal like gold or silver but how pawn shops operate overall.
So let’s get into the basics – what’s melt value anyways? Well precious metals like gold and silver are trade as a commodity on the open market and have a global price that governs many governments economies and the value of the metals you own.
That having been said, the price is not really set per say. At one point in time it was a set value in the United States but those years have long since passed.
Now the price of precious metals moves by the second. Up, down, sideways, there’s always activity. But it’s pretty easy to check just by visiting a site like goldprice.org.
Pawn shops would love to pay you the 100% melt value of your precious metals but sadly it’s not really possible as there are additional costs associated with the refining of the gold.
So What Do Pawn Shops Pay
For 99% of the gold or silver that comes into a pawn shop they will pay a percentage of the melt value and normally a very respectable one. Typically speaking, if you are selling whatever the item is then they will offer to pay you a higher percentage of the melt value, but very few pawn shops pay 100% of that value.
Sure, there may be some out there but they are rare as there are a variety of additional costs that go along with these precious metals.
You have to understand, when you take, well let’s say a gold ring for instance, to a pawn shop and make a loan on it, they may pay you 50-70% of the melt value.
Why not more? Oh just wait. You see, there’s going to be a monthly interest fee on that loan and as time goes by those add up. If 3 or 4 months pass and you don’t come back for the item, the pawn shop then has to melt the ring to get their money out of it.
Now I know what you are thinking. You are probably thinking that they will instantly make a 30-50% profit on that ring right? You’re right!
You see, the funny thing about business is that when you are dealing with the expenses of the business those monthly interest fees become attached to the item as part of it’s cost. So if the monthly fee was $9 for the loan, after 4 months that ring now cost the pawn shop an additional $36!
That alone basically rules out the idea that a pawn shop could even be able to pay you 100% of the melt value for you metal and still be able to operate a business. It just can’t happen, that’s now how the numbers work.
But wait, there’s more…
You see, now they have this ring that cost them, well let’s say $50. You then add the $36 to that and the total ring’s cost would be $86. If the ring was only worth $100 in gold weight, then you are still probably thinking that the pawn shop will make $14 on it.
Well, as unimpressive as a $14 profit is, sadly for the pawn shop you would still be wrong. Refining gold isn’t fee. There’s a percentage that the smelter charges for performing that service, normally between 5-10% give or take and depending on the smelter. In other words, that ring is now worth between 5-10% than you though it was just because it has to get melted.
So with that in mind, we are going to knock another $5-$10 off the top of the value of that ring and before you know it you are down to the pawn shop making an entire $4 on your gold ring that they paid you 50% of melt value for.
The Moral Of The Story Is…
Just because an item’s melt value may be one thing doesn’t mean that a business operating within the boundaries of the law can necessarily pay you that amount for it. Unfortunately accounting just doesn’t allow for it and the expense associated with the interest fee has to go someplace, it doesn’t just disappear.
But with that in mind, if you are selling the ring that we used in this example outright, you will probably find that the pawn shop is willing to pay you something much closer to the melt value of the ring because the only thing that really bothers than at that point is the cost of the refiner to do his job.
That is of course in addition to all of the other expenses associated with running a pawn business, such a rent, the cost of the employees, power, heat, security, etc…
The bottom line is that even though a pawn shop isn’t paying you 100% of melt, that doesn’t mean that they are exactly making a killing on your items either.
