Pawn shops provide loans to those needing quick cash by allowing customers to leave property as collateral. If a borrower defaults on the loan, the shop has the right to sell the collateral.
Transactions and Collateral
To pawn something means to leave it at a pawn shop as collateral for a loan. Pawn shops also buy items outright from people who choose to sell. However, pawned items are not insured by the shop while they are held as loan collateral. Items can be sold by the shop if the original owner doesn’t repay the loan according to the agreed terms.
Insurance and Legal Requirements
Pawn shops require insurance to protect against various types of losses including injuries, property damage, legal fees, inventory losses, and damage to shop contents. Insurance rates typically range from $400-$700 annually and depend on several factors such as the shop’s revenue, its claims history, and its location.
Law enforcement agencies mandate that pawn shops report the serial numbers of newly acquired items. Although most items pawned are not stolen, this process aids in tracking stolen property and ensuring pawn shops operate within the law.
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