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How Pawnshops Work

What's the Deal?


­Pawnshops and pawnbroking have been around for thousands of years. The basic idea behind any pawnshop is to loan people money. It goes like this:

  1. You bring in something you own and give it to the pawnbroker as collateral for a loan (this act is called pawning).
  2. The pawnbroker loans you money against that collateral.
  3. When you repay the loan plus the interest, you get your collateral back.
  4. If you don't repay the loan, the pawnbroker keeps the collateral.

As defined by the North Carolina General Statutes, 91A-3:*

  • Pawnbroker - Any person engaged in the business of lending money on the security of pledged goods and who may also purchase merchandise for resale from dealers and traders
  • Pawnshop - The location at which, or premises in which, a pawnbroker regularly conducts business
  • Pawn or Pawn transaction - A written bailment of personal property as security for a debt, redeemable on certain terms within 180 days, unless renewed, and with an implied power of sale on default

*Pawnbrokers Modernization Act of 1989

In the next section we'll discuss an example of a pawn shop transaction.

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