What is Pawnbroker? Definition and Example

What is Pawnbroker?

A pawnbroker can be defined as someone who lends money to people using secured loan. What is secured loan anyway? This kind of loan is when a borrower has to hand over something first to the pawnbroker as a pledge. The broker then values the item and gives the amount of money worth the item's value.

It is like when someone needs money immediately, and then they go to the pawnbroker bringing a gold necklace. The broker then estimates the value of the necklace and gives the owner the money. Moreover, the broker keeps the value. Once the borrower pays off the loan (with extra fee) of course, the necklace will be handed back to them.

Pawnbroker Definition

The official definition of a pawnbroker is a person whose job is lending money with interest on the security of a valuable pawn. The pawn here is the item brought by a borrower in order to secure the loan. When a borrower does not bring any items, the pawnbroker cannot give away the loan.

What Does a Pawnbroker Do? Example


1. Giving loans

There are a lot of things that a pawnbroker does. The essential job of this kind of broker is basically giving loan to people. However, before handing away the money, the broker needs to do several things. First, he needs to estimate the value of the pawn. He needs to do this carefully to make sure that he won’t give away too much or too little money to the borrowers.

Second, he needs to make several paper works, including the credit agreement. Third, he also needs to establish the details of the loans, including how long the loan will last and how much the loan will cost.

2. To keep the items secured

The other job of a pawnbroker is to keep the pawn items safe and secured. The borrowers can redeem the items anytime, really, as long as they pay off the loans. Thus, the broker must have the items ready anytime.

The example of the usage of a pawnbroker has been explained above. However, to give more understanding, here’s another example: someone needs to have fresh money as soon as possible. He cannot go to the bank for loan because he has bad credit. He then contacts a pawnbroker. As he goes to the broker, he brings his house certificate.

The certificate is used by this borrower as the pawn. He hands over the certificate to the pawnbroker. The pawnbroker examines and establishes an estimation of the certificate’s value. He then makes a credit contract. When the borrower agrees with the amount of money and everything else on the contract, he signs it. The broker gives the money and keeps the certificate.

Also read "What is Mortgage Broker? Definition and Example".