Now here we have a totally reasonable question that I probably get asked at least five times a day.
When you take something into a pawn shop, do you get more if you sell the item or if you just make a loan on it?
Here’s the bottom line. Pawn shops look at pretty much everything that comes in as if they would have to resell it.
What that means is that even when you’re making a loan against something, and intend to come back and get it at a later point in time, a pawn shop is still looking at the transaction as if they might have to one day sell your item.
Now of course, pawn shops know that most people want to come back for their things.
That having been said, not all people do. It’s an unfortunate fact about the pawn industry that pawn shops have just come to accept.
It’s not that they’re bad people, it’s just that when money is tight, sometimes paying back a pawn loan takes a lower priority than other things that they are facing.
So when you go to make your loan on an item, the pawnbroker is already looking at it as if he is going to have to resell it. Therefore, the pawnbroker will be attempting to determine what he or she may be able to resell it for in the future.
From an accounting point of view, this makes a big difference when determining how much money a pawnbroker will pay for an item.
What A Pawn Shop Has To Consider When You Make A Loan On An Item
When you make a loan on an item, you might just think that whatever the pawn shop gives you for it is how much it will cost them.
However, that unfortunately is just not the case when it comes to the pawn shop’s balance sheet.
In the accounting world, expenses are based not just on an item’s principal cost but also whatever unpaid percentage of interest went into that loan when it forfeited.
Because of that, when a pawnbroker is looking at an item that they may have to resell one day, they are going to be looking at the cost of the item in addition to whatever interest charges may have stacked up on that loan should you not come back for it at a later point in time.
Why That Makes A Difference To A Pawn Shop
Why this matters to a pawn shop is that if they give you $100 for an item, and you don’t come back for it, then they also have to add the interest charges to the item when determining its cost.
So for instance, if there was $25 of unpaid interest due on the loan when it forfeited, then the actual cost of that item for the pawn shop is $125. This is obviously $25 more than the hundred dollars they originally gave you for it.
A pawn broker will keep this in mind when making you an offer on an item. If you are making a pawn loan against an item they will offer you a little less than if you were selling it.
Using the same example above, if a pawn shop offered you $100 on a loan for an item, they may have offered you a $125 if you were to sell. In the end, this is because the pawn shop knows that their cost should be right around $125 for that item either way they go.
Unfortunately for you however, if you made a pawn against an item instead of selling it, you will have only gotten $100 for it as opposed to the $125 that you may have gotten otherwise.
Is That A Normal Practice With All Pawn Shops
Yes, as far as I’m aware, this is a standardized practice across the nation.
In addition to them having to calculate the true cost of an item when they are offering you a loan value for it, they may also want to give you incentive to sell it.
The reason for this is that when you sell an item, a pawn shop will typically have to hold it for a much shorter amount of time before they can turn around and resell it.
For instance, if you make a loan against an item a pawn shop may have to hold onto it between three and six months before the item forfeits and they can sell it.
However, when you sell an item, a pawn shop may only have to hold onto it between five days and a month before they can resell it. This is beneficial to them because it gets cash back into the business that they had already spent when they bought the item.
This is known as turning inventory, and it is very common practice in retail establishments.
Are There Any Exceptions To This Rule
There may be some cases where there are exceptions to this basic rule.
For instance, if you are a long term customer that has never forfeited a loan and always paid on time, then a pawn shop may over looking their normal cost analysis. This is because they know that it is extremely likely that you are going to come back and get your item when you are supposed to.
This all but eliminates their concern about how much an item will cost them because they know that it is very unlikely that they will be stuck in the position of having to resell it at a later point in time.
However, even if you are a long time customer with a pawn shop, if you have a somewhat spotty history of not picking everything up (or forfeiting some loans), or not paying exactly on time, then you may find that a pawn shop is less likely to bend on this rule.
This isn’t personal, it’s purely a matter of determining if they may have to resell the item later and what that item will cost them should they need to do that.