Pawning jewelryThe old practice of hocking personal belongings to get cash fast - a.k.a. pawning - is on the uptick, no doubt due to the hot reality show Pawn Stars, which documents the doings at a Las Vegas shop. But that series usually focuses on rare finds that are sold for a flat fee, not pawned. The real heart of pawning is short-term "safety net" loans for more ordinary items. Here's how it usually works (no matter what The Old Man might do on TV): You bring in your item, the pawnbroker makes an offer, and then - after some negotiation - he gives you cash. If you want to get your item back, you have a set time period (often 30 days) to repay the loan with interest. Do so on time, and you'll get your item back. Default on the loan, and the prize goes to the pawnbroker - who then has the right to sell it. What's more, there's now a whole online pawning industry for people who don't want to set foot in a pawnshop. Either way, you have to learn the ropes so you won't sell yourself short:
1. A pawnshop shouldn't be your first stop. Though it dangles the promise of cash in exchange for gold, watches, musical instruments, and more, going to a pawnshop should be a last resort, for when your credit cards are tapped out and you can't get a family loan - say, your car needs a new alternator and you must drive to work. You'll pay very high interest rates at a pawnshop: up to 25% per month. On a $200 loan, that would be $50 per month, compared to the current average credit card rate, which at press time was about 15% annually, or $30 per year on every $200 borrowed. On the plus side, pawning will not put red flags on your credit record - even if you default.
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2. Know when to go online. Brick-and-mortar shops offer small, short-term bridge loans, which last year averaged $150 nationwide and were usually due within 30 days. But deep-pocketed pawngo.com - backed by the Internet giant Lightbank, which founded Groupon - caters to customers who have pricier items (think Rolex watches or large diamonds) and offers loans averaging almost $2,000, usually with three- to six-month terms. Pawngo.com also charges a 6% interest rate: $60 monthly on a $1,000 loan. You provide as many details as possible and, ideally, upload a photo. Pawngo.com will make a preliminary offer, then pay to ship your item, insured, to its offices. A final offer will be made; you choose whether to accept. To use pawngo.com, you must have a bank account so the site can electronically transfer funds to you and deduct the interest charges.
3. Keep your eyes open. "During a tough economy, people are using pawnbrokers more," says Katherine Hutt, spokesperson for the Council of Better Business Bureaus. "But it's critical to know exactly what you are getting into so you are not taken advantage of. Read the contract, ask questions, don't sign anything you don't understand." (The number of complaints to the BBB about pawnshops rose from 242 in 2007 to 410 in 2011.) To be safe, visit bbb.org and click on "Check Out a Business" before approaching a pawnshop. Type in the business name or the word "pawn" to see a list - click on each business to search for complaints filed against it.
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4. Understand that the pawnbroker wants to profit. Suppose gold bracelets like yours are selling for $250 at the mall. That's not what a pawnbroker is going to loan you. The broker will determine resale value by checking eBay, gold-market prices, and his own database. Ideally, he wants you to repay the loan (with interest) and get your item back. But he doesn't want to give you cash and then be stuck with something he can't resell at a profit. So he sets the price low enough that he won't lose out. The CEO of pawngo.com, Todd Hills, says if a watch is worth $1,000, his company will lend the customer between $500 and $800. This formula may apply at neighborhood pawnshops, too.
5. Weigh sentimental value. When you pawn an item, you sign a waiver saying that if you don't repay the loan on time, the broker can sell your stuff. So if your marriage went sour and the diamond ring your ex gave you is sitting in a drawer, fine. But if we're talking about your grandmother's pearl earrings and you're determined to buy them back, think hard about how likely it is that you'll be able to do so. Whether pawning in person or online, up to 85% of customers buy their merchandise back, while the other 15% or more may endure some serious heartache.
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6. Cash in on what's hot. Gold is in high demand. A pawnbroker should take out his scale and pay you about 80% of market value for it; gold scrappers may well offer less. Other sought-after goods include sports and celebrity memorabilia, luxury bags, and really old coins. Pawnbrokers also love "anything with an Apple on it," says Hills, including iPads, laptops, and those phones.
Have you ever tried pawning? Let me know in the comments!
-By Alice Hurley
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