How does pawn shops work?
Buying Items
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Pawn shops give customers a place to sell their personal items for cash. The pawn broker looks an item over carefully and determines how much money he can obtain for it. He then makes a lower offer to the customer. The pawn broker makes money when he sells the item at a higher price.
For example, if a customer offers a working DVD player the pawn broker knows he could sell for $45, he might offer the customer $20. Were the DVD player to sell at $45, the pawn broker would make $25 in profit. If the pawn broker determines that the item cannot be resold, he will not make an offer to buy the item. The pawn broker must be fairly sure he can resell the item before he takes the risk of buying it.
Selling Items
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The pawn broker does her research and knows the details of each piece she has for sale. The pawn broker spends more of her day trying to sell items than she does buying them. She may have a window display that spotlights her best items. The pawn broker also will have the store set up in such a way that customers can easily find what they are looking for.
Issuing Loans
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It is common practice for a pawn broker to issue loans and take items from the customer as collateral. The items must have a salable value equal to or larger than the loan that is being issued. The pawn shop will then set a rate of interest, which is generally between 5 percent and 12 percent. If the customer doesn't pay back the loan on time, including the interest, the pawn broker can legally sell the item that was put up for collateral. If the customer pays back the loan (with interest) on time, the item is returned to the customer.
Keeping Records
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Many criminals steal jewelry and electronics, then sell them to pawn brokers for cash. Because of this, pawn brokers must keep accurate records of all items he buys or sells. Many states require pawn brokers to collect names, addresses and copies of licenses from the individuals who sell them items. This makes it easy for law-enforcement officers to track down thieves and recover stolen property.
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