What is a primary characteristic of pawn shops?

Pawn shops are indeed classified as non-bank financial institutions, which is a primary characteristic of their operation. They provide financial services, such as loans, without being part of the traditional banking system. This classification means they are not governed by the same regulations that apply to banks, allowing them more flexibility in their operations.

In addition to their institutional classification, pawn shops typically engage in secured lending practices, offering loans against items of value brought in by customers. This collateralization is a key aspect of their business model, differing from purely unsecured lending which is characteristic of banks.

It’s also worth noting that pawn shops often charge high interest rates, reflecting the risk involved in lending against collateral with less stringent credit requirements than traditional loans. However, this is not their defining characteristic in the same way their status as non-bank financial institutions is. They may serve individuals with varied credit scores, not exclusively those with high scores, which highlights the accessibility of their services to a broad range of customers.