Pawn Policy

What is a pawn?

Pawns are short-term, high interest collateral loans. Essentially the customer exchanges an item for a loan of money which will accrue interest until the loan is paid off and the item is returned to said customer. The advantages are numerous: pawns do not affect credit, there is no need to beg for money from banks that are not willing to loan, the process is relatively quick, and they allow the customer to get short-term cash without having to sell a treasured item.

We only write pawns from out Old Town location. Buyers in field offices can make initial evaluations for a pawn to make sure it is worth the drive, but they cannot create a pawn.

Pawn amount

Our minimum for pawns is $2500. We do not issue pawns less because the interest rates are set by the state and generally so low that they aren’t worth the trouble. Clients who need loans for less than $2500 can be referred to a pawnshop, such as Royal Loan.

Interest Rates

We charge 7% interest per month, which is 84% per year. In some cases, we may charge a lower interest rate for good customers. Always get approval from a manager before lowering interest rates. Make sure any special interest rates are recorded in the portal and customer file.

Interest accrues monthly, but no payments are due until the end of the loan term.

To calculate the interest: Interest = Principle x .07* = interest rate per month. Interest rate per month x 4 = total interest.

Example: The loan principle is $2500. $2500 x .07 = $175 (monthly) so $175 x 4 = $700 (total interest)

*If the rate is different from 7%, change this number accordingly.

Length of Term & Renewals

Pawns are written four-month loan periods, with a 10-day grace period at the end, which accrues an additional month’s interest.

Pawns are intended to be short term, but we generally allow customers to renew their loans by paying back the interest. A standard renewal is for the full term of 4 months, done by paying the 4-month accrual of interest. In some cases, we may allow customers to renew month-by-month. This is not preferred as it is more work for both parties.

It’s important to note that renewals are totally at our discretion – we are not required by law to allow a renewal.

Valuing items for pawn

The most important thing to consider when evaluating an item for a loan is the pawn to collateral ratio: this is the amount we are willing to loan plus all accrued interest versus what we can actually sell the item for. There is a calculator on the Buy Portal Document Center that will give the maximum pawn amount, based on the sale price of the item(s). As a general rule, we do not loan more than 60%-70% of the item’s wholesale value.

We only want to loan on items that have reliable resale. No marginal watches, no small, junky diamonds. Scrap metals are ok if the ratio is more conservative, such as 40%-50% of current melt.

There is much more market risk in a pawn than in a buy, so it is better to be conservative for a pawn payout. The customer may want you to push the payout and this may seem logical that we end up earning more in interest. However, it is not a good idea. By pushing the payout, you increase the risk that we will not meet the pawn to collateral ratio, if the item defaults. Yes, we make a little more in interest if they pick it up, but the higher payout decreases the incentive for the customer to pick up the pawn, since they have already received a pretty good price for the item. A lower price creates incentive for them to pick up, since no one wants to let their item go for cheap.

Many customers will claim that they”ll be right back to pick up their item in a week, a month, etc. and try to pressure you for more money. Don’t fall for it. You have to assume that we will end up owning it the item. Generally speaking, the louder the customer squawks about coming right back to pick up their item, the less likely you are to ever see them again. To smooth things over you can say something like “In the event that you”re struck by a meteor, we have to be able to sell your item.”

For pawns over $2500, you determine the maximum amount, and the customer can decide on any amount between $2500 and the maximum. There is no rule that they must take the maximum.

Repeat Pawns

Very often our pawn customers will do repeat business with the same item or items. Each new pawn, the item(s) must be evaluated like new. Never assume the items are ok. Do not simply give the last value in the system. It is very easy to be lax and just copy the previous deal, but we open ourselves to lost value and scams if we do not double check value every time we pawn. Here are some examples:

• The obvious example is simply that the value on the item has changed (gone down) since we last evaluated it.
• Another likely scenario is with a pawn customer who does multiple loans on groups of items. The customer may switch up the items from loan to loan. This easily leads to us giving out a value that is too high for the items, if we don’t double check. The customer could let it default and stick us with a bad deal. This could be done intentionally or unintentionally, but either way it is our fault.
• A potential scam would be someone pawning a valuable item once, twice or more times, and once they see we are lax about the intake, they give us a fake.

To reiterate, always value & record returning pawns like new pawns.

Redeeming & Renewing Pawns

The customer must redeem their pawn after the contract term, or it defaults. We usually allow the pawn to be renewed with payment of interest, but it is done at our discretion. We are not legally required to do a renewal.

Pawn customers will often ask for special accommodations, or complicated ways to pay off the pawns, or sell the items instead of paying off the pawn. It’s important to remember that we do not need to make any accommodation. Keep it simple. If they want to sell the items, they must redeem the pawn first, and then they can sell it. If they want to sell part of a pawn, they can redeem the whole pawn, and then sell the part in question. In some (rare) circumstances, we may bend these rules, but NEVER promise this to a customer. If a pawn customer asks for this, it usually means they are short on money and are just delaying the inevitable. “Helping” them with a special accommodation usually means a lot more work for both of us, for no extra gain.

There is no sales tax charged on pawn redemption or renewals. Pawn interest is usually tax-deductible.

Accepting payments for pawns

We accept three primary methods of payment for pawn redemption or renewals:

• Cash (the preferred method of payment)
• Cashier’s check
• Wire transfer

For cashier’s checks, we must call the bank to verify the funds. It is a good idea to tell customers to get a phone # and contact at the branch that issues the check, because sometimes the automated systems do not update quickly, and may not recognize a check that was just issued. You may be able to get on web-chat with a bank to verify a cashier’s check, if calling doesn’t work. (You can see why cash is preferred – much easier.)

In some cases, only with managerial approval, we may accept a personal check or credit card for pawn payment.

• Credit cards (with approval from management)(with a 3% service charge)
• Personal check (with approval from management)(with a 3% service charge)

Personal checks will only be taken as advanced in order to ensure that the check clears before the item is delivered. (Do we need to charge a service fee in that case?)

Procedures

See policy PAWN HAT for step-by-step instructions for handling pawn procedures.