Pawnbroking 101

Pawning refers to the act of pledging an item in exchange for money. Pawn is the oldest and simplest form of credit tracing back thousands of years. In fact, early Roman laws refer to “Contractus Pigneratius”, or a loan secured by a pledge.

Pawns are a unique form of collateralized funding in which the client exchanges an asset(s) for cash. The client receives payment immediately with the understanding that the pawn shop will securely hold the pledged merchandise until an agreed date. On or before that date, the client has the option to recover the pledged item by repaying the funds plus a fee for storage and handling.

Unlike a traditional loan there is no obligation to repay. In fact, there is no debt at all. If the client decides not to recover the item, it is considered sold to the pawn shop for the agreed price. The non-recourse nature of the transaction shifts all risk to the pawn broker. If the pledged collateral is not sufficient to recover the advanced funds, the loss is borne by the pawn shop. There is no debt or obligation to pay, only the option to recover the merchandise if the client chooses.

Pawns are very consumer friendly because there is no credit impact, collection process, or penalty charge. In fact, pawns are the only funding platform that does NOT leverage the client’s future earnings with a payment obligation. The collateral-based nature of the transaction allows pawn shops to bypass reliance on traditional models of creditworthiness. We assist clients that conventional lenders would view as “un-bankable” by unlocking the value stored in their assets.