A pawn shop loan is a loan secured by property that is turned over to the pawnbroker. If the borrower repays the loan and interest in the specified period of time, he can reclaim his property. If he fails to repay the loan, the property transfers to the pawnbroker.
Pawnbrokers may offer loans on a wide variety of different property, but most loans are secured with valuable items like jewelry or auto titles. The loan offered is usually for a small fraction of the value of the item as a way of encouraging the borrower to make good on the loan in order to retrieve the collateral. Interest rates on pawn loans are typically much higher than other types of loans, reflecting the potential risk to the lender in the transaction. If the borrower defaults, the pawnbroker is then free to keep or sell the item to recoup the money lost.
Pawnbrokers may also buy items outright. In many cases, the amount offered for a loan is actually higher than the amount offered to purchase the item, since the loan offers more chances to profit from the same piece. In addition, pawnbrokers are usually more strict about what they buy compared to what they lend money against, since they must consider whether or not the item is likely to sell quickly for a profit.