It’s important to prepare thoughtfully for any interaction with a pawn shop. By understanding how that kind of business operates, you can have a successful negotiation if you need to take advantage of that kind of service.
Before you consider using a pawn shop to borrow against or sell some of your property, do a bit of advance homework and make sure you’re ready.
Selling to pawn shops
Decide if you are going to pawn or sell: At a pawn shop, you can borrow money, using your property as collateral. After an agreed-upon time (usually 30 or 60 days), the pawn shop will own your goods and be able to re-sell them if you don’t repay the loan. Alternatively, you can simply sell the property and forgo the borrowing part.
Some shops give more money if you’re selling outright, rather than pawning. Since they don’t have to hold the goods as long before they sell them, and don’t have to deal with the overhead and paperwork involved in lending, you might get 10% more for your goods by simply selling them vs. the amount you’d get when borrowing.
Know how the law affects pawn shops. The banking and borrowing industry extends beyond credit cards and mortgage loans; places like payday lenders and pawn shops are also financial institutions under federal law.
Pawn shop laws
There are over a dozen relevant federal laws that restrict pawn shops, and the most important are:
Truth in Lending Act
Requires pawn shops provide written loan terms with fees and interest rates clearly spelled out in writing.
Equal Credit Opportunity Act
Prohibits discrimination by lenders on the basis of race, color, gender, disability, marital status, age, religion, national origin, or because you get public assistance.
Requires lenders to confirm your identity before doing business with you—that means you will need to provide a government-issued photo ID.
Bank Secrecy Act
Requires lenders to report transactions to the IRS to prevent money laundering. While amounts over $10,000 must be reported, smaller amounts are also investigated to ensure borrowers aren’t “structuring” cash transactions to avoid IRS scrutiny.
FTC Safeguards Rule
Requires lenders to protect consumer privacy and safeguard customer information in their care.
ATF Transaction Rules
Pawn shops that buy and sell firearms have to follow ATF guidelines around reporting and verifying background checks, etc.
Military Lending Act
Requires pawnshops to verify whether the customer is eligible for the MLA. Military members cannot be charged more than 36% interest annually.
Other things about pawn shop regulations
Besides federal laws, every state has its own agency and set of laws regulating pawn shops. These laws are frequently more restrictive than the federal laws. For example, in our home state of California, the interest rate on a pawn shop loan is capped at 2.5% monthly, which is equivalent to a 30% APR. Other states have monthly rates of 25%, which is a 300% APR.
This illustrates a problem with short-term loans like those offered by pawn shops. A 30 or 60-day loan might come with interest and fees that exceed 400% when calculated as an Annual Percentage Rate, but these loans aren’t Annual. It seems that no borrower will carry a pawn shop loan for long enough to make the APR relevant. But knowing how the short-term loan’s APR compares to other loan products like credit cards is helpful when deciding whether or not to take out a particular kind of loan.
Still, some states have structured loans and fees and interest separately, so a pawn shop may be limited to charging 3% per month in interest but is also able to charge 20% per month in service charges. So realistically, the charge is 23% per month.
Besides the financial laws regulating pawn shops, states have privacy rules of their own than can be more restrictive than the Federal Trade Commission (FTC) Safeguards rule. But no matter where you are, these privacy regulations don’t protect your privacy from law enforcement. Pawn shops everywhere report what they buy to local police or sheriff’s departments to ensure they are not trafficking in stolen goods.
Beyond the reporting, pawn shops must keep records, in case a criminal investigation is triggered later. Some states have online databases for pawned goods to help prevent theft.
What do pawn shops buy?
Look into what sells and what doesn’t. Every location and pawn shop is different, so it helps to do some local research, but there are some general categories of goods that are preferred by pawn shops:
- Precious metals, especially coins & jewelry
- Some kinds of electronics, specifically game consoles
- Musical instruments and gear
- Sports equipment, especially golf clubs and bicycles
- Small appliances, like a sewing machine or high-end blender
Items pawn shops are unlikely to buy
Some goods are less likely to be desired by a typical pawnshop:
- Unhygienic items; a used mattress or vacuum is a tough sell for a pawn shop
- Obsolete technology, unless it’s a highly collectible item
- Televisions are rapidly becoming better and cheaper, so selling used ones at a pawn shop won’t fetch a great price
- Cameras are in every smartphone, and they get dramatically better every year, so traditional cameras won’t sell as readily
- Computers & smartphones can be problematic for pawn shops, because it’s hard to verify functionality, and many have anti-theft activation locks enabled
- Collectibles can be tough for pawn shops to evaluate and put a value on, unless they specialize in that kind of item
Pawn shop tricks & tips
Before you head to a pawn shop with your goods, survey the place to ensure it’s the right destination.
- Identify their specialty. Some stores won’t deal in firearms, and some stores specialize in collectibles like comic books, baseball cards, or coins. Try to take your goods to the right kind of store to ensure the best valuation.
- Personal recommendations are always important. If anyone you know has used a particular pawn shop and has gotten good treatment, count that as a big plus.
- Visit the store as a buyer first. If you’re shopping in the store as a buyer, do the prices seem honest, and are the goods worth buying? If the prices seem too reasonable, then don’t expect them to offer you much for your property.
- Check certifications. Start with the Better Business Bureau, naturally, but don’t forget special certifications depending on your transaction—for example, if you’re pawning jewelry, make sure the shop is certified by the Gemological Institute of America.
How to sell stuff at a pawn shop
Before bringing in goods to a pawn shop, prepare them so they’ll get you a better return:
- Clean, polish and repair your items.
- Know the value. If you’re selling precious metals, find out what current gold prices are. For collectibles, look at a pricing guide. For any item, you can look up what other people are charging for those goods online. You can’t expect a pawn shop to give you the full retail value, but it’s still important for you to know what the goods are really worth before pawning them.
- Establish provenance. It’s critical that you be able to demonstrate the goods are yours and you acquired them legally. Any documentation you have to prove your goods are legit is important to have when taking the items to a pawn shop.
How to deal & negotiate with pawn shops
When negotiating with a pawn shop to establish a value for your items, there are some things to keep in mind:
- Haggling is expected. You don’t have to accept the first offer. A pawn shop will expect you to counter with a higher price.
- Make a good impression. If you are difficult to talk to, you’ll be difficult to negotiate with. Try not to be aggressive or standoffish when introducing yourself.
- Consider multiple trips. If you’ve got a lot of goods to pawn, consider separating them into different trips to the pawn shop. If you become a repeat customer, you’ll get to know the staff and have a better idea how to work with them. Plus, the staff might be more favorable to you if they see you as a regular they’ll be dealing with again in the future. If you’re thinking of selling or pawning something highly valuable, think about starting with something smaller to build that relationship.
- Adjust your expectations. Know that the pawn shop can only afford to give you roughly half of what the goods are worth. They won’t be able to stay in business if they give you the full retail value for your goods, as there has to be profit in it for them when they resell. Anything you can get over 50% of the item’s value is a win.
- Create a win-win. Like we said, the store has to be able to profit off the sale of your goods. Try to create a negotiation where both of you will come out ahead. If you want to get more than 50% from the pawn shop, try to have your goods in perfect, ready-to-sell condition. The pawn shop may offer you a bit more money (and take less profit for themselves) if they see that your goods would make for a quick sale.
- Let the pawn shop offer first. Never be the first to name a figure when negotiating. Ask what the pawn shop will give you for an item and go from there.
- Don’t volunteer information. The pawn shop may ask you how much you paid for the item originally, where you got it, etc. Try to avoid giving too much information, as it will give them the advantage in a negotiation. Understand that you may have to provide proof of purchase to demonstrate the goods aren’t stolen, but don’t give up that information before you’ve settled on a price with the buyer.
- Be ready to walk away. If you’re not getting enough for your goods, be ready to walk away. If you walked in knowing the true value of your goods, you should have a hard limit below which you won’t go—something like 40% of the item’s retail value should be the absolute minimum offer you’d entertain. There are lots of other pawn shops you can get bids from.
If you’re thinking of visiting a pawn shop to get a loan or sell some of your goods, make sure there’s not some better way to address your financial situation. Talk to a certified financial coach for free to get budgeting and debt advice that might make it easier for you to make a smart decision about borrowing from a pawn shop.