The proprietor of the pawnshop, the pawnbroker, makes loans on personal property left as collateral against the loan.
You, the client, pay interest on the loan, and the interest rate is regulated by the state in which you live.
Per month, the interest rate can vary from as little as 2 percent to as much as 24 percent-again, depending on the rate set by your state.
You get your property back when you repay the loan plus interest plus any special fees that are charged.
The average length of time merchandise remains in a pawnshop is three months.
If you can't pay off your loan when it is due, your property becomes the property of the pawnshop.
However, you can usually renew the loan provided you pay off the interest charges on the original loan.
In some states, if you default on the loan, the broker has to sell the pawned item and give you any money that exceeds the cost of the loan.
Customers like pawnshops because they are an easy source of cash.
Also, they are the avenue of last resort for people who need a small amount of cash-say three or four hundred dollars-a loan amount most banks don't want to bother with.
If the interest rate charged on the loan is small and the length of the loan is short, most customers figure they got a good deal.
However, the industry is still assaulted by critics who say that while the shops may look prettier, they are still operating as legalized usury.
If, for example, you get a 3 percent loan and drag out the loan for 12 months, you end up paying 36 percent interest for the year.
In general, you can pawn just about anything; jewelry, cameras, musical instruments, silverware, TVs, guns, etc.
You name it and some pawnshop will probably take it.
Most loans are made at about 25 to 35 percent of what the pawned item would sell for; loans for jewelry are somewhat lower.
Some upper-crust shops even take cars, boats, and Rolex watches.
If you decide to pawn your personal property, be sure you understand the transaction and your legal obligations.
What is the interest rate charged per month? How long is the term of the loan? Is there a grace period (some pawnshops give clients five days before taking over the property)? Will the broker notify you that the loan period is about to expire? Can you extend the loan if necessary and, if so, under what conditions? Also, take your merchandise to several shops to get the best loan.
If you have any questions about the reputation of a pawnshop, call your local Better Business Bureau.
For many people, pawnshops are more than just loan-givers.
Many have lots of property to sell and people of all income levels are hitting the stores in search of the best bargain.
Some shops offer limited warranties on specific products; many shops take checks and credit cards.
And prices are always negotiable.
Just remember that pawnshops still vary greatly in reputation, whether you are shopping for a loan or shopping for merchandise.
Be a wise shopper and make informed decisions.