Raising cash in a hurry #7: Pay a visit to the pawn shop

Update 2009: The recession and new limits on payday advance companies have been sweet news for the nation's pawn shops. No need to be embarrassed any more about visiting a pawn shop; you'll probably meet some of your neighbors there.

When I was growing up, I watched a lot of Twilight Zone reruns. I developed what has become a lifelong fascination with pawn shops. In The Twilight Zone, pawn shops were places of magic and mystery, the kind of joint where you might find heaven, hell, hope, or redemption. It's where Jack Klugman dropped off his trumpet before he met the angel Gabriel, where Luther Adler found a genie who taught him to love his modest life, and where Larry Blyden died before going to hell. Pawn shops were the kind of places where anything could happen.

Later on, I saw more and more of the dark side of pawn shops. Watching Brandon Lee sort through stolen engagement rings in The Crow and seeing Rod Steiger abuse his patrons in The Pawnbroker, I came to realize that pawnshops can be places of misery, where people give up pieces of themselves in order to continue financing their lives. I began to understand that pawnshops occupy an interesting place in American culture. Like the three medieval gold balls that hang in front of many pawnshops, these places have a tradition and history. They hang somewhere between hope and despair, offering the one and causing the other.

Of course, most pawnshops aren't nearly as cool as the ones on the TV and in the movies. They tend to be clean, shiny, low-rent affairs, with fluorescent lighting, high ceilings, and industrial carpet. There are usually a couple of glass cases with pieces of jewelry and the occasional firearm. They're good spots for picking up used tools and DVDs, the kinds of places where you can sometimes find a great deal on some mildly threadbare merchandise.

For a brief period in the late 1980's, my father used some DC-area pawnshops to raise a little quick dough, and I got a quick lesson in the economics of the pawn industry. Basically, pawnshops work like this: you bring in your items, which you offer up as collateral on a loan; in most cases, the loan will be about ten percent of the actual value of your item. If you agree to the loan, the pawnshop gives you a loan ticket.

At this point, you have three choices. One option is to buy your item back. To do this, you go to the pawnshop sometime in the course of the next month and pay back the loan with interest, which is usually somewhere around 20%. Your second option is to come back a month later and pay the interest on the loan, in which case you continue the loan for another month. Your final option is to let the loan expire, in which you keep the money and the pawnshop keeps the goods.

The positive aspect of the pawnshop lies in the loan. Unlike a payday loan or other short-term loan, you have already given up possession of the collateral, which means that, should you default on the loan, you will have nothing more to pay. You will not have to worry about interest on the loan compounding, driving you deeper into debt.

Another positive aspect of pawnshops is the impermanence of the transaction. Unlike a clear sale, a pawnshop loan allows you to regain possession of your item. Therefore, if your fortunes turn around, you will be able to get your stuff back. With Craigslist and eBay, once your stuff's gone, it's gone.

Finally, pawnshops are very convenient. While Craigslist and eBay will net you far more money for your possessions, getting the cash can take days, weeks, or even months. With a pawnshop, getting paid takes about as long as it takes you to cart your stuff down to the store. You don't have to worry about keywords, pictures, listing your item properly, fraudulent bidders, or any of the other headaches that accompany internet sales. You simply drop off your property, whine a little bit about how the pawnbroker is screwing you, grab your dough, and leave.

The downside is pretty obvious. If your precious possessions stay with the pawnbroker for over a month, he puts them on sale to recoup the cost of your loan. Chances are that he will be able to sell your stuff for a lot more than he gave you, which means that, once your month is up, you probably won't be able to buy your stuff back.

So should you use a pawnshop? Absolutely--if you're a buyer. As I mentioned earlier, they are great places to find deals, and can be a lot of fun to wander around. On the other hand, you should view them as an absolutely last resort for selling your stuff. While they will enable you to get your hands on a little bit of money very quickly, they will end up giving you a bare minimum for your goods. If it comes to a choice between selling blood, going to a pawnshop, or ending up on the street, sell your blood, then go to the pawnshop!

Bruce Watson is a freelance writer, blogger, and all-around cheapskate. When it comes right down to it, pawnshops make him a little sad.

Read Full Story