How Do Pawnshops Make Money?

Pawns have various proactive ways of making income but there are three distinct factors that enable them to survive in prevailing market forces. Below are the three factors that happen in any pawnshop: 

  • Collateral Loans 

This is the first and most important revenue source for pawnshops. This is by providing loans on items and earning interest on the loan balances. A pawnbroker makes a loan custody of an item which se5rves as collateral for the loan. The specific amount of a pawnbroker willing to lend is based mainly on the value of the item, but it can substantially be affected by the pawnshops current inventory with regards to time. Pawnbrokers make a higher but reasonable interest than banks but lower than retail stores. This is due to the risky nature of loan defaults that sometimes are very high. Even though their interests are a bit high, they are subject to government regulations that govern the amount of interest a pawnshop is allowed to charge. 

  • Reselling 

This is the second most important source of income for pawnshops. This is commonly termed as retail sale. In this scenario, the pawnbroker has items purchased outright from individuals as well as items that were pledged as collateral goods by loan. This is from customers who had a default in their loan repaying. This forces the pawnbroker to forfeit the pledged collateral property. 

Pawnshops do offer more money to outright purchase items than they do offer to lend against the property. 

  • Offering Auxiliary Services 

Pawnbrokers have various common ways to supplement their incomes. They do this by offering auxiliary services but at a reasonable fee. These extra se4rvices are like check cashing, cell phone activation, money transfer services, bill payment services and shipping services as well. 

  • Selling Brand New Items 

This is another way pawnshops generate income. It may be not be among the three main factors but definitely its worth. In this scenario, many pawnshops will trade items as long as the transaction turns a profit for the pawnshop. In such a case where the pawnshop buys items outright, the money is not a loan. It is a straight item payment for the item. On sale the pawnshop may offer layaway plans, subject to conditions (down payment, regular payments, and forfeiture of previously paid amounts if the item is not paid off). This is somehow similar to retail sale.

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