Basically, pawn shops 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.
Don't Call It a Pawnshop: Where the Rich Go for Quick Cash.