What Is a Pawn Shop: The Beginner’s Guide to Pawning

What is a pawn shop? Pawn shops are financial institutions that have been around for centuries and are a valuable resource for people who need short-term loans. They are considered a last resort for people who need money quickly but don’t want to or can’t take out a traditional loan from a bank.

This blog post will talk about the legality of pawning, explain how the process works, and what customers can expect when they visit a pawn shop.

Key Points

  • How Do Pawn Shops Work?
  • Pawn Shop Regulations
    • Are Customers Protected by Federal Laws?
  • What Is a Pawn Shop Loan?
    • Why People Resort to These Loans
    • How Is the Value Determined?
    • What Can You Pawn?
    • Tips for Negotiating at a Pawn Shop
    • What Happens If You Don’t Pay Your Pawn Shop Loan Back?
  • Can You Sell and Buy Stuff at Pawn Shops?
    • Do Pawn Shops Buy Stolen Items?
  • Our Takeaway

How Do Pawn Shops Work?

When customers visit a pawn shop, they bring in items they would like to pawn. What does it mean to pawn something? When you pawn something, you use it as collateral for a loan. The pawnbroker will assess the item’s value and offer the customer a loan based on that value. But what happens after, and is your property safe?

Pawn Shop Regulations

Are pawn shops predatory, you may ask. Contrary to many people’s beliefs, pawn shops are not the same as loan sharks. Pawn shops are highly regulated. While state laws that regulate pawning vary from state to state, pawn shops are considered financial institutions under Federal Law. Some of the federal laws every pawnbroker must abide by are the Truth in Lending Act (TILA), Gramm-Leach-Bliley Act, IRS code regulations, and US Patriot Act.

To obtain a pawnbroker license, applicants must undergo a background check and demonstrate that they have the financial resources to operate a pawn shop and handle the potential negative income. Pawn shops are also required to keep detailed records of all transactions and report any suspicious activity to law enforcement.

Are Customers Protected by Federal Laws?

Pawn shop customers are protected by the Federal Trade Commission’s (FTC) Consumer Protection Act, Equal Credit Opportunity Act, and TILA, among other regulations. Under the latter act, pawn shops must disclose certain information to consumers, including the terms of the loan and the customer’s rights if they default on the loan.

Why Do Pawn Shops Take Your Picture?

Pawn shops take pictures of customers and their items for two reasons. First, it’s a way to document the transaction because you must present your name, address, phone number, valid ID, passport, or driving license to complete the transaction. How else is a pawnbroker supposed to identify you when you come to get your collateral back?

Second, it helps deter theft. If an item is stolen from a pawn shop, the police can use the picture to identify the thief and return the item to its rightful owner.

What Is a Pawn Shop Loan?

Short-term loans are the most popular pawn shop services offered. You can’t get a pawn shop loan without leaving an item to serve as collateral.  

Just research ahead of time and be aware of the risks involved. We recommend googling “pawn shop near me,” find them on Better Business Bureau, read reviews, and see their rating.

Why People Resort to These Loans

People opt for pawn shop loans for a variety of reasons. Some people need quick cash to pay bills or cover unexpected expenses. Others have bad credit and can’t get a regular loan.

Pawn shops require no credit check since they don’t report to credit bureaus, and the loan is secured with assets. Therefore, pawn shop loans can neither ruin nor improve your credit score.

How Is the Value Determined?

How does pawning work in terms of determining the value? The pawnbroker determines the value of an item based on several factors. The most crucial factor is the item’s resale value. They will look at similar items that have been sold recently and compare them to the item in question. If a particular thing is high in demand, a pawn shop can offer you more.

Pawnbrokers will also take into account things like condition and age. The final step is to come up with a fair price for the item. Keep in mind that pawn shops offer up to 60% of an item’s market value.

What Are the Interest Rates for Pawn Loans?

The pawn shop loan interest rates will vary depending on the state in which you live. The maximum interest rate doesn’t go over 3–5% per month in most states. However, some states, like Nevada, have significantly higher interest rates (13%).

What Can You Pawn?

Even though you can pawn almost anything of value, there are some high-demand pawn items you can get decent money for. So, what do pawn shops buy? Let’s see!


The US jewelry store market size is $33.9 billion, but how do pawn shops work with jewelry? First of all, you can rarely get anything from costume jewelry unless precious stones are in it or the piece is vintage. Second of all, you should take your bling for appraisal to a jewelry store beforehand.

When pawning jewelry, you must remember that pawn shops are not designed to offer you the best possible value. So, if your piece is valued at $1,000, the pawnbroker may offer you a $750 loan. That means that, in this case, a pawn shop will loan you 75% of an item’s market value.

Fun fact (or a myth): it was long believed that Queen Isabella of Spain pawned crown jewels and her favorite ruby necklace to finance Columbus’s voyage to the New World.


Pawn shops will typically accept most electronics, including televisions, laptops, consoles, and smartphones. Bring all the chargers, cables, accessories, etc., to ensure you get the maximum value from a pawn shop.

Vintage technology can also be worth a pretty penny. An original, unopened iPhone can be worth up to $6,000!

Musical Instruments

Generally, musical instruments can reach a pretty good price at a pawn shop. However, unless a piece you’re pawning has a signature of a musician who played it, the fee a pawnbroker will offer will be up to 40% lower than the instrument’s low market value. For example, a Les Paul guitar can get you anywhere from $150 to $1,400. 

Here’s some music trivia for you: in 1978, The Edge, U2’s guitarist, purchased his famous vintage Gibson Explorer (the most handsome guitar ever made, in the author’s humble opinion) in a used musical instrument shop called Stuyvesant Music (later called We Buy Guitars, now known as Well Strung Guitars) in New York. The Edge paid only $248.40 for it. In 2008, when he sold it in an auction for helping Hurricane Katrina, it fetched $240,000.


The value of your tools will depend on the type, condition, and brand. While you can’t expect much for essential hand tools, pawning power tools can usually get you up to $200 a piece.


Not all pawn shops accept vehicles as collateral. However, some that do will keep your car in a secure location, while others vehicle pawn shops will keep the vehicle title until you repay the loan and let you drive your vehicle in the meantime. The downside of these title loans is that the interest is higher.


Before you take any piece of art (e.g., a painting) to a pawn shop, you should get it appraised. Some pieces could be worth thousands of dollars, but be modest in your expectations (unless you own a Picasso or other household name). A pawnbroker will usually offer 40–50% of the original value.


How much you can get by pawning collectibles depends on many factors, the most important being the type. For example, rare coins can get you a million bucks. Also, some graded and signed baseball cards can be worth hundreds of thousands.


If you own a high-end firearm in good condition, you can pawn it for about $500, but expect to undergo a background check if you wish to purchase a gun!

Tips for Negotiating at a Pawn Shop

When negotiating a price in pawn shops, there are a few things to consider. First, it’s important to remember that the staff has experience in negotiating. That being said, you shouldn’t be afraid to haggle a bit yourself. You never know.

Another tip is to be aware of the value of the item you’re trying to sell. Pawn shops will typically offer less than the item’s worth. So, it’s important to ask yourself before you start negotiating—what is worth money at a pawn shop? In addition to taking the item for an appraisal, you can also research the value of your item online using a free pawn shop value estimator, such as Pawn Bat.

What Happens If You Don’t Pay Your Pawn Shop Loan Back?

Suppose you take out a pawn loan and don’t repay the loan plus interest within the holding period indicated by your contract (30–90 days). The pawn shop won’t give you your collateral back but sell it to recoup the losses. In some cases, you may negotiate with the pawnbroker to extend the deadline if you pay the interest. Make sure to familiarize yourself with state laws regulating holding period length.

Can You Sell and Buy Stuff at Pawn Shops?

You can sell and buy items at a pawn shop. This is the difference between pawning vs. selling: pawn shops typically buy things for 30–60% of the item’s value and sell items for 50–80% of the item’s value. However, the exact prices will vary depending on the item and the pawn shop.

When buying expensive things from a pawn shop, you can take advantage of the layaway. So what is layaway at a pawn shop? It’s a service that allows customers to pay for items over time. The customer pays a down payment on the item and then makes regular payments plus interest until the item is paid off (typically for 90 days). Once the item is paid off, the customer can collect it from the pawn shop.

Do Pawn Shops Buy Stolen Items?

By law, pawn shops must report any suspicious activity to law enforcement. If a pawn shop buys a stolen item, the police can trace it back to the shop and confiscate it. The pawnbroker may also be charged with possessing stolen property.

If you think an item you bought at a pawn shop has been stolen, you should contact the police. The police will investigate the matter and determine if the item was stolen. If it’s determined that the item was stolen, you will be required to return the item to the rightful owner. You may also get a refund from the pawn shop.

Our Takeaway

Pawn shops are a popular source of quick cash, but they can also be a great place to find bargains on jewelry, electronics, and other items. While pawn shops typically charge higher interest rates than banks or credit unions, they can be a perfect fit for people with poor credit or those who need cash fast.

The government regulates pawn shops, so customers can be sure that their transactions are safe and secure. With a bit of research, you can take advantage of these deals.

What Is a Pawn Shop FAQs

Why is it called a pawn shop?

The “pawn shop” term origin probably comes from the Latin word “pignus,” meaning “pledge,” also connected to Anglo-Latin “pandum” and Old French “pan, pant.”

According to some sources, the latter is identical in form to “pan,” meaning “piece of cloth, cloth,” derived from Latin “pannum,” meaning “cloth, garment.”The “pawn” definition goes back to medieval Europe when pawnbrokers would often lend money to knights and nobles for armor or other valuable possessions. These items would then be stored in the pawnbroker’s or “pawn shop.” If the borrower could not repay the loan, the pawnshop would keep the collateral.

When should you not use a pawn shop?

There are a few situations when you should not use a pawn shop:

  1. If you can’t pay the loan (you could lose your collateral)
  2. If you’re looking for a long-term loan
  3. If you want a more significant amount of money
  4. If you don’t feel like leaving your personal belongings as collateral

What do the 3 balls on a pawn shop mean?

There are a few stories about how three balls (globes) became a pawn shop sign.

According to one account, the three-sphere symbol may be attributed to the Medicis of Florence, Italy. It’s said that a member of the Medici family killed a giant with three bags of rocks on the order of Charlemagne (Emperor Charles the Great). After that, the symbol of three balls became featured on their family crest.

Since the Medicis were well-known as lenders, people in the finance business also started featuring this symbol on their crests.

So what is a pawn shop in terms of historical banking? It refers to the Medici family and the Italian region of Lombardy, where pawn shop banking originated under Lombard banking. Another story about the pawn shop symbol origin goes like this: St Nicholas, the patron saint of pawnbrokers and unmarried people (among other things), gave three bags full of gold to three young girls so that they could get married.