Pawn Shops, also known as pawnbrokers or pop shops, are shops that lend money to people in loans. For an individual to receive a loan from the shop, he/she has to give out collateral value pawn shops. Collateral is security in exchange for a loan. It can be expensive items such as gold and jewelry. The property given by a customer to serve as collateral is returned to him/her after paying back the loan and the interest. Interest is the fee for the use of money within a specific period. If a customer defaults to pay back the loan within the agreed period, the loan lender is at liberty to sell the collateral to recover the money. The amount of money given to a customer is subject to the value of the collateral presented.
Typically, these shops are small-scale businesses by nature. The loan they offer is short-term and in a small amount. In the like manner, the value of collaterals involved is also tiny. Therefore, the amount of money needed to start up the shop is too small and easy to start. Regarding that, some pawn customers bring their items for sale without taking a loan. Consequently, they can avoid the extra fee that is charged when they take a loan.
In context, when a customer brings an item as collateral to the shop, the shop owner assesses the value of the item and offer a loan to the customer that is less than the value of the item. When a customer manages to repay the loan and the interest, the collateral is returned to him/her. In case he/she cannot repay the loan plus interest within the agreed timeframe, the ownership of the item transfer to the shop owner, and he/she can sell it at a profit to recover the loan and the interest.
The existence of pop-shops has served goodness to a wide range of customers. Firstly, they can get cash quickly when the need arises. Therefore, they can save time involved in tiresome bank procedures. Besides, there is not credit Cheque when they request a loan. All needed is collateral that serves as a security to the loan. Despite that, customers have access to as many loans as possible since only the collateral is required. The more the collateral, the more the loan. Finally, customers’ lending ability in pawnbrokers set up does not affect the bank’s credit report. These shops operate independently.
Conclusively, pawnshops act as a catalyst in any economy because they help business people and other entities get instant cash. Therefore, they participate in increasing the Gros Domestic Product (GDP) of an economy. It becomes more accurate to say that these shops are a source of employment for many. And for that reason, economists will never ignore the input of these shops when doing their analysis.