How Pawn Shop Loans Work

Pawn shops provide a valuable service to Americans especially in these recessionary times when money is difficult to come by

. Said service comes in the form of fast, easy and convenient secured loans, which means that the loan requires collateral items like gold jewelry.

The collateral item is required as a security deposit that the individual pawning the item will pay for his cash loan (principal, interest plus other applicable fees) on or before the maturity period. It must be emphasized, however, that the individual is not under any legal obligation to actually redeem the pawned item because it is his personal discretion as it is. The pawned item then becomes the legal property of the pawn shop and, thus, can be disposed as the management sees fit usually by reselling at a profit.

When the individual, however, decides to redeem the pawned item, he must do so before the maturity period typically in 60 days' time from the date of the pawn. The pawn shop may or may not allow for a 30-day grace period after the 60 days have elapsed for the customer to redeem the item albeit with added charges.

For example, you decide to pawn the engagement ring from your ex-husband to finance your kids' education. You will go to a pawn shop for appraisal of its value and then decide to pawn it at the offered price of, say, $200.

The pawn shop staff will make a pawn ticket showing the date of the pawning transaction, the maturity period and grace period, and the amount of the principal loan less any applicable service charges, interests and other fees. The item being pawned is also described in the pawn ticket (i.e., gold ring 18K gold with 1-carat pear-shaped diamond).

On or before the maturity period, you can redeem the engagement ring by paying back the amount of the principal loan plus any other applicable interests, charges and fees up to that point. Of course, the item pawned will be returned in its original condition - that's what a safe and secure pawnshop safe is for.

It should also be noted that the amount of the loan is dependent on the assessed value of the item used as collateral in the transaction. Pawn shops have different methods of value assessment for items ranging from gold jewelry to electronic gadgets.

by: Robert Hamilton

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