The pawnshop can be thought of as the world's oldest financial institution. It can be traced to ancient China, when merchants would hold collateral and heirlooms in exchange for rice. In any case, while I find this sort of thing fascinating, we don't really need to do a chronology of money lending for what we want to talk about. There are two aspects I want to discuss, buying and selling.
Part one - When you pawn or sell something
Let's start with the particulars. Most states have very strict laws governing pawnshop operations that will vary depending on what state you're in. For example purposes only, and since I live in Ohio, we will use those applicable laws.
There are two ways you will be charged for pawning an item. The first is interest. The maximum interest that a pawnshop can charge is 5% on the loan value. This interest is calculated on the entire loan value per month. Simply put, for every $100 that is pawned, you will be charged $5 per month in interest. The second is storage fee, which is $3 per item, per month.
Generally, on items that are desirable, you can expect to be paid 25% of the items value on a loan (pawn) but only 15% on an outright sell (this is where you simply sell them an item) this is because a pawnshop makes their primary income on interest received. To have to sell something is a secondary priority
So, let's say we pawn out beautiful Fender Stratocaster for $150.00 and come to retrieve it 60 days later.
- Amount of loan to us $150.00
- Storage for 60 days $6.00
- Interest accumulated at the rate of 5% - $15.00
- Money to be paid to reclaim item - $171.00
That is pretty much that. (Makes you want to open a pawnshop doesn't it. What was it that Mark Knofler said; Get your money for nothing and your chicks for free?)
Part two The buy
The biggest mistake a person can make is to believe that just because they buy low, that they sell low. Over 50% of their sales prices are over retail. Yes, retail. That T.V. that you bought there could have been bought for less money, brand new and H.H. Gregg. But that also means that half the other people buying there are getting their stuff cheaper, and here's why.
Browse often. Even if you don't plant to buy anything, stop in once or twice a month and just look around. Build a repertoire. The best deals always go to those they think will give them repeat business. Not the guy who thinks he can just swing in and get something for nothing. Building a relationship will also get you access to items that are not displayed.
For example, there may be a Les Paul in the back that is just a couple days away from being forfeited. This bit of information might be thrown your way if you're in the market for a new axe. There is nothing the pawnshops like better than to have a forfeited item pre-sold. It saves them a lot of time and headache.
I also understand that a lot of people just don't have the time or inclination to frequent a pawnshop a couple of times a month. If that's the case here are a couple of bargaining strategies.
Most people believe that if you act like you don't really want something, you can get it for less. THIS IS NOT TRUE. If the salesman thinks you aren't interested, then he figures he doesn't really want to waste his time trying to get you to buy it. In the pawnshop realm, they don't care if you buy it or not. You have to keep in mind that the interest on loans is their bread and butter, not selling items. The items will sell eventually to someone else who does want them, and what the hey; the pawnshop got it for next to nothing any way. They have until hell freezes over to sell.
The attitude to have is: you really do want it and if they work with you and are reasonable, a deal can be struck.
The most important thing is be prepared to buy on the spot. Say something like "well, I'll have to discuss this with my wife" and you are dead in the water. Just smile and show cash money(or a credit card). That is what will do most of the talking for you.
Negotiate tax. If you agree on $500 for that strat, try to get it out-the-door for that. If they won't, try to meet them half way. They can write it up as selling for $485.00 and you split the difference on tax, paying only about $515.00 out the door instead of $535.00