Did you know the world-famous Hope Diamond was once pawned? Or that the English Crown Jewels were once pawned by King Edward III? Or that pawn shops are mentioned in several of William Shakespeare’s plays? Long before sophisticated banking systems existed, princes, paupers, popes, and kings borrowed money based on collateral. Pawn shops have been around for a long time, but they have evolved as well.

Everyone has seen the weird guy smoking behind the counter in a sketchy corner store, trying to take a stolen television and selling it off to another creepy pawn broker probably so they can go buy drugs. However, this is not the case. For starters, because pawn shops are strictly regulated, it is simpler to sell stolen items online than it is to sell it to a pawnbroker. The industry has worked hard in recent decades to improve its image.

Pawn shops are non-recourse, collateral lenders, which means loans are based on the item’s value rather than someone’s credit history. The length and interest rate of a loan are frequently determined by the state.

For example, when you loan against gold in Australia some states require the pawnbroker to keep objects for two months and they can’t charge a monthly interest above 20%. It may differ in different states of Australia. People can sell their items directly to pawnbrokers, but that is not the typical business model or what most people do.

Basically, you bring in your watch, get a loan on it, get a ticket for it, and come back later to redeem your watch, paying off the loan plus interest. If you don’t return to pay off your loan — or at least keep making interest payments (some people leave items at their local pawn shop for years) — the pawnbroker keeps your watch and can sell it.

The absolute worst-case scenario with us is that you lose your ring and your watch. Pawnbrokers will not garnish your wages, will not harm your credit, and will not be the reason your home loan is denied by the bank.

Pawn shops are a by-product of capitalism. People would not need them if they had more money. While the perception of pawn shops is that they only serve people in times of need. That is not true for everyone. Some people pawn items to get the last bit of cash to pay for a concert ticket or a vacation. And in good times, they are more confident that they will be able to pay it off.

A typical pawn shop does best when the economy is good and rolling and people feel safe and secure pawning extra items they don’t need like — a laptop, some jewellery, television,  or a watch — so they can just get the temporary loan because they will be getting paid at the end of the month.

The pawn shop is just a part of many people’s financial lives, and some of their possessions are just a part of their budget. When you loan against gold in Australia its best to build relationships with brokers and return time and again to obtain loans.

By Pehyan