Pawnshop Operation and Source of Income

The Pawnshop owners can relate to the scenario of not knowing what might come across the pawnshop or how successful will be the operation for the day because it is not repet1t1ve day-in-day-out-job which is a unique business and a challenging one. But the hurdle of owning a pawnshop lies in its operation and services particularly how much the items presented as collateral for the short term loan worth.

Knowledge of the value of products, particularly gold, jewelries and mobile phone units, is a must. Pawnbroker needs to know the retail price and current market price of every item on which they are loan. They also need to watch the trends where items changed and their values change as well.

Although there are courses on pawnshop operations, much of what pawnshop owners learn are from experience at their respective stores and they never take it for granted because pawnshop business is a hard-nosed business.

A typical transaction begins with a potential borrower coming into the pawnshop with the item he or she wants to pledge for a loan. The pawnbroker or appraiser then determines how much to loan the customer for the item. When both parties agreed with the amount to be loaned out, the appraiser then sealed the pawned item and let the borrower signed on top of it to prevent tampering. This will make the borrower feel secure that his or her security for a loan – personal property will not be retouched, used and damage by the pawnshop owner.

After the pawn ticket – pledge loan contract has been read and signed by the borrower, the casher will now release the amount stated in the pawn ticket and be reminded of its expiry date of redemption if not renewed (payment of accrued interest to extend the short term loan) on time. The pawnshop will issue new pawn ticket for renewal provided that the old ticket has been surrendered and paid the interest accrued upon.

“A fraction of a day is equivalent to one month in the virtue of computing the interest earned in the short term credit” ruled by the Bangko Sentral ng Pilipinas in its Standard Stipulation Terms and Conditions for the pledge agreement or Pawn Ticket. So it is really profitable in the event pawner redeemed the item they pawned in two weeks time and pays the 5% interest rate and the next enter in another loan transaction to the pawnshop and redeem the item in a span of one week, the total interest earned for a month is 10%. The opportunity to earn interest income in this business is huge as long as the customer had a good relation to the pawnshop itself for patronage.

Loans are issued at a rate of about one third (1/3) or (33%) to one half (1/2) or (50%) of the price the pawnbroker/appraiser can expect to receive for the sale of a good during the worst of times. This assures that the pawnbroker will make a profit at the auction sale or at the side of the borrower, he or she will lost 2/3 of the actual value of the said item so the borrower must really redeemed it.

Checking the client’s credit history is not necessary because only the value of the item being pawned is considered as collateral. Unlike in availing loans in the banks and other financial institution, they required credit history, guarantor, etc which will not be the answer to grassroots, employees and wage earners emergency need of cash that day. But for Pawnshop it is the backbone of the business, easy processing and availment, easy cash which give them the image of popularity to the masses. In the moment they received their wage or the delayed salary, immediately they went to the pawnshop to redeem the said items and pays the interest due to them.

If a borrower / pawner is unable to repay the short term loan plus the accrued interest in its expiration date, the pawnbroker forecloses on the collateral and outs it up for auction.

Pawnbrokers derive income primarily from two or three income streams:

  1. Interest and Service Charges on money lent
  2. Profits on sale of unredeemed merchandise
  3. Profits from ancillary specialty services such as currency exchange, money order sales and electronic load for mobile phones.

Interest and Services Charges

Our Pawnshop System will enable the investor to earn at least 60% annual interest on all loaned out Capital. ( Please see our Financial Statements)

The monthly interest rate is 5% ( 5% x 12 =60% )

So we have targeted to get a positive cash inflow of P8.1M, the pawnshop should loan out P 8,888.89 for just three months and will have a cash revolving or start up Loan Portfolio  of P 800,000.

In comparison to commercial banks and other lending companies, they get their income from interest for every new loan of 1% to 2.5% monthly, and yet they are all liquid. So it is imperative to say that this financial institution earns at this interest rates, how much more for the Pawnshop business averaging a 5% monthly interest rate on every loan plus a collateral – to secure loan payment.

Profits on Sale of Unredeemed Merchandise – Auctioned / Rematado Sale

  • The income earned from this sale is from 70%-100% of mark up from the principal amount loaned out.
  • Mobile Phone units – 70% – 100% Mark up per unit for 60 days ( Note: With our experienced, every time we sell mobile phone units, it’s like selling hot cakes. 5days maximum time to sold all inventories for rematado sale of cellular phones.)
  • Gold Jewelries – 75% – 100% Mark up per item for 120 days.

If the item looks as new and don’t have defects and scratches, you could sell them from 120% – 200% mark up from the principal loan amount.


We didn’t include other ancilliary services such as Sales of New Gold Jewelries. All information on this paper is for Pawnshop Operation. So you can expect bigger revenues if we include those things.

What are the reasons why Pawnshop is still the best business to invest at present?

The economy is still down and a lot of the people need cash to pay their emergency expenses which are not part of their budget. Even the labor sector with regular jobs still needs to borrow money to meet both ends, satisfying the need for food, education of their children, household expenses, repairs and other maintenance which are not the in the list of the usual expenditures. In this situation, they run into pawnshop to pledge their personal items in return for cash.

This is the reason why the growth of pawnshop is compared to sprouting mushroom even at stiff competition with multi national pawnshop companies, locally owned pawnshop can still perform well and got a sliced of the short term credit market.

In the Philippines, Pawnshop has the highest rate of Interest earned for one year. In our case, we release our loan at 60% Interest ( 5% x 12 months ) annually on every loan released compared to 12 – 36% interest rates of the commercial / rural banks and other financial institutions. It has a potential to earn a Return of Investment in just 3 years and a half.

Read Part 1

source: forums posted by “treasurechest consultancy” who has an existing pawnshop business at Kalibo, Aklan, photo from


  1. By David


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