Archive for the ‘Pawn Ecomomics’ Category
Saturday, August 28th, 2010
From News Dot Sky Dot Com
2:32am UK, Saturday August 28, 2010
Darren Little, Midlands correspondent
Pawnbrokers are experiencing a resurgence in business with the number of shops in the UK more than doubling since 2003.
The National Association of Pawnbrokers is predicting that the trend will carry on as banks continue to deny people easy credit.
It is a huge turnaround for an industry which was thought to be dying out 20 years ago but now seems to have attracted a new generation of customers.
Paul Cockell, who set up Regency Jewellers and Pawnbrokers in Leamington Spa 10 years ago, says he has seen a 10 fold increase in business.
“The kind of things that are coming in are more expensive items, the Rolex watches, Breitlings, diamond rings as opposed to smaller bits of gold and jewellery,” he said.
Major chains of pawnbrokers are now commonplace on high streets and they are making a lot of money from their easy cash business.
H&T for example reported profits up more than 70% in the last six months.
Unsurprisingly 60% of those using pawnbrokers are unemployed, mainly pawning jewellery and watches, taking advantage of what is a straightforward service.
However, Nathan Finch, of the National Pawnbrokers Association, said there had been a gradual shift in the type of clientele now using the service as bank loans dry up.
“We haven’t seen a ridiculous rise in business but we seen a steady increase in a new type of customer looking to pawnbrokers to raise cash,” Mr Finch said.
“I think certainly as mainstream credit is harder to come by people are looking to alternatives and pawnbrokers are seen as a fast and speedy alternative.
“People historically assumed it was just working class people who came to pawnbrokers but that’s changed and it its changing more.
“It’s just really everyday day people who have bank accounts and they prefer the speed and convenience of coming to a pawnbroker.”
He added: “I think the main difference between us and mainstream finance at the moment is that we look for reasons to lend while they look for reasons not to lend.”
It is likely pawnbroking will continue to be a booming industry for the immediate future.
Many of the major brokers are already planning to open more stores.
The test of the industry will be whether its success continues when the economy picks up.
Tags: consumer credit, Credit Crunch, economic crisis, National Pawnbrokers Association, Pawn Loans, pawnbroker, pawnshop, United Kingdom
Posted in Pawn Ecomomics | No Comments »
Thursday, August 26th, 2010
From WPM Observer Dot Com
By Sarah Wilson
Guest Reporter
There is always a certain amount of risk involved with any business; will it be profitable? Can the product sell? Can it survive the economy?
For pawnshops, this level of risk goes up tenfold. They, in essence, make their money by giving money: you bring in your old television; they give you $100. You pay them back; you get your TV back.
What happens when the economy tanks and everybody decides they’d rather keep the money than get their old TVs back?
Well, as Disco Pawn in Orlando owner Greg Hastings put it, “You’re going to be loaning money out like a drunken sailor!”
In order to make it through the failing economy, pawnshop owners such as Hastings have had to come up with creative ways to survive. They’re doing this by changing not only the way they do business, but by working to break the age-old stigma of what a pawnshop is.
Economic effect
On the surface, a bad economy may seem like a pawn owner’s paradise.
“People are pawning their grandmothers if they could make a 100 bucks on it,” Hastings said. “People are so hurting for cash you’d be surprised the kinds of stuff people try to bring in to pawn.”
Though that side of business is booming, the number of people coming back to pick up their property and pay off their loans is at an all-time low.
This means the pawnshops are out the cash that was loaned, and must now take that old TV and try to sell it in their shop. This is where the pawn industry takes the biggest hit — much like every other business finds out in tough economic times — the stuff isn’t selling.
“Before, everyone picked everything up — they’d come in and put a loan on it and pick it up,” said Ryan Stumpf, the owner of Instant Replay pawn in Orlando. “We used to run like a 64 to 65 percent reclaim average so the majority of the stuff would get picked up.
Nowadays your running like a 35 to 45 percent average … it puts us at a disadvantage too — now we have to sell it.”
As Hastings put it, pawnshops like his end up merchandise rich and cash poor.
“The general public thinks you’re making so much money, and yeah it’s a high rate of interest, but it’s a tremendously high rate of risk,” he said.
Breaking the bad reputation
Stumpf said the majority of Americans have never been inside a pawnshop and so they can only relate their experiences to what they’ve seen in the movies.
“In the movie, you see a really dingy little joint,” he said, “with bars and armed people and big fat slobby guys.”
“They’ve always had a bad reputation. Before I moved to Florida, my image of a pawnshop is some big, old, fat, crusty dude with a stinky cigar hanging out of his mouth, and a couple of guys in the back playing poker … generally speaking, those days are gone,” Hastings said with a chuckle, as Taylor Swift’s innocent voice played over the loud speakers in his shop.
There is a certain stigma that comes with the idea of a pawnshop being dirty and crawling with criminals, which Hastings and Stumpf willingly poke fun at, but each say are grossly misconstrued.
Hastings compares the look of most pawnshops today to what someone would expect to find in a Winn-Dixie. By going for more of a retail setting, pawnshops can draw in “mainstream” business, such as the La Familia Pawn Shops stores that are going into old Blockbuster locations.
But that doesn’t mean all pawnshops have cleaned up their acts, Stumpf said. “There’s always a few bad apples, but I think a lot of people don’t understand what kind of regulations pawnshops go through these days.”
In order to sell to a pawnshop, the shop must get the serial number for the item being pawned and the fingerprint of the person coming in to pawn it. This, Stumpf said, often deters criminals from trying to sell stolen items. “Usually criminals are pretty smart cause they know we’re so heavily regulated,” he said.
Getting a pawn license to begin with, he said, is equivalent to signing your civil rights away.
“Cops can come in my store at any time; they can go through my inventory; they don’t need search warrants; they can just come in and say ‘Look, I’m gonna go through your store and there’s nothing you can do about it.’ If you don’t have proper documentation and proper paperwork, they fine you, and they have the ability to take you to jail very easily,” Stumpf said.
Hastings said his own gut instinct is the most vital business tool he uses as a pawn owner to keep his business afloat.
“If a guy comes in here with beady eyes and he’s shaking and his nose is running, and he can’t even talk straight and he’s gritting his teeth and he’s got a $3,000 Fender guitar and he wants to sell it to you for $100, you know damn well the thing’s gotta be stolen,” Hastings said. “You know, you gotta use your judgment, just like a bartender. If you know a guy’s drunk, you don’t sell him another vodka and tonic, right?”
Tags: Business Risk, consumer credit, economic crisis, Pawn Loans, pawnbroker, pawnshop
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Monday, August 9th, 2010
From NNBW Dot Com
Pawn shops recapture lost ground
Rob Sabo, 8/9/2010
Strapped Nevadans once again are turning to their local pawnshop rather than a payday lender for an infusion of ready cash.
As payday-lending institutions cropped up throughout the state over the past decade, they siphoned off a great deal of business from northern Nevada pawnbrokers, pawnshop owners say. But regional pawnshops once again are seeing an upturn in pawn transactions — mostly because unemployed borrowers lack the means to get loans at paycheck advance businesses.
Dion Draper, partner for the past three years at Premier Pawnbrokers in Fallon, says many Fallon-area residents have exhausted their options at the town’s paycheck advance stores and have come in to his establishment to pawn their hard goods. They like the idea of pawning, he says, because there is no threat of legal action if they default on a loan.
“If they walk away from a loan, they simply walk away,” Draper says. Though business has spiked at Premier Pawnbrokers, Draper says he’s also seen a higher default rate and retail sales have lagged.
Dan McCassie, owner of Main Street Pawn in Fernley, says the town’s three payday lenders once drew off some of his clientele, but residents returned to his store to pawn items as the recession deepened in recent years in Lyon County.
Many people, McCassie says, already had borrowed money at Fernley’s three payday lenders and found themselves buried under interest rates that sometimes are higher than 500 percent on an annualized basis.
“They can only afford to do that so long before it completely breaks the bank,” McCassie says. “It is easy for them to write a check and get money, but it is so hard for them to pay the loan off.
“Some people no longer can get a cash advance,” he adds. “They have gotten one at all three places, and they are left with no choice but to pawn their hard goods.”
But pawnbrokers are getting more selective on items for which they’ll loan money. McCassie says electronics more than one year old are out, and jewelry and guns are the most-pawned items among Fernley residents. “Guns and gold are always safe loans,” McCassie says.
Bill Burnbaugh, 62, owner of Capitol City Loans at 5951 Highway 50 East in Carson City, has seen a dramatic dip in clientele seeking auto pawn loans since payday lenders entered the cash advance market.
Burnbaugh says the number of auto loans written at Capitol City has declined by 80 percent in recent years as the cash-needy turned to loans at payday lenders since they don’t have to put up any collateral.
Burnbaugh has been in business in Carson City since 1977 and has moved four times for bigger operating space. He’s currently in a 20,000 square foot building on 1.5 acres.
Erminia Drobkin is the Nevada state representative for the National Pawnbrokers Association and owns Pioneer Loan and Jewelry in Las Vegas, the oldest pawnshop in Las Vegas — it was founded in 1931. She says the average pawn transaction in the state is about the same as what a payday lender would give, but payday lenders remain a popular alternative to pawn shops because customers don’t have to part with their valuables.
Payday loans were legalized in Nevada in 1997, and Nevada is one of the few states in the country that doesn’t cap fees or interest rates. In 2007 Nevada lawmakers tried to curb some of the business practices of unscrupulous payday lenders, which charge interest rates as high as 300 to 500 percent a year. Loan limits now are capped at 25 percent of a borrower’s expected monthly income.
In 2007 there were more than 1,200 people directly employed at nearly 400 payday lending institutions in the state, a study by IHS Global Insight of Lexington, Mass. found. The industry generated nearly $42 million in tax revenues for Nevada.
Drobkin says most people in the state who pawn jewelry usually pay off their loans because of a sentimental attachment to the piece — and because they can re-pawn it later if necessary.
Pawnbrokers also say they have seen an increase in foot traffic at their stores due to the hit television show “Pawn Stars” on the History Channel. The reality show chronicles the daily ebb and flow of business at a busy Las Vegas pawnshop — and has gone a long way to remove the image of seediness and desperation that has plagued the industry.
“We have become more popular because of ‘Pawn Stars,’” McCassie admits. “At first I thought it was kind of goofy, but it really promoted and pushed the pawn industry.”
Adds Burnbaugh: “Some people turn their nose down at pawnbrokers, but pawnshops have changed dramatically.”
Drobkin says pawnbrokers throughout the U.S. are enjoying a rise in business from the exposure the show has brought the industry.
“It gives people an idea of what they can pawn or sell and where to go to borrow money,” she says.
ALL CONTENTS © 2010 Northern Nevada Business Weekly. ALL RIGHTS RESERVED.
Tags: consumer credit, Las Vegas, Pawn Loans, pawnbroker, pawnshop, Payday Loans
Posted in Pawn Ecomomics | No Comments »
Monday, July 26th, 2010
From Orlando Dot Bizjournals Dot Com
Friday, July 23, 2010
Thedford starts new pawn shop chain, plans 20 stores by year-end
Orlando Business Journal
- by Anjali Fluker
John Thedford is giving the pawn business another try — but this time he wants a different end result.
Thedford, who in 1994 established the Value Pawn & Jewelry chain in Central Florida, grew his business to 67 stores in Florida, Georgia and Tennessee with 700 employees and $120 million in 2007 revenue before selling the chain in 2008 to Austin, Texas-based publicly traded pawn giant EZCorp. for $115 million.
After the sale, Thedford was expected to become president of EZCorp, but opted out to create a new chain and write a book, Smart Moves Management. It will be published in October.
Last summer, Thedford’s new firm, Family Financial LLC, opened its first La Familia Casa de Empeno y Joyeria in Puerto Rico, expanding to two stores in February. This month, Thedford debuted his first Florida La Familia Pawn & Jewelry store in a 6,500-square-foot former Blockbuster Video shop on Curry Ford and Conway roads in Orlando.
Tags: consumer credit, John Thedford, La Familia Pawn & Jewelry, Orlando FL, pawnbroker, pawnshop, Value Pawn
Posted in Pawn Ecomomics | 3 Comments »
Saturday, July 17th, 2010
From The Wall Street Journal Blog
By Michael Casey
July 16, 2010, 3:41 PM ET. Boom Times for Diamond District.
The world’s financial markets are living through a unique historical moment, one in which a deflationary present competes fiercely with fears of an inflationary future.
A weak economy and high gold prices create a perfect storm for pawn brokers. For proof, look no further than New York’s Diamond District on West 47th Street between Fifth and Sixth avenues. Here, deflation and inflation do battle on a daily basis, creating a new business opportunity for the jewelers who have plied their trade on that strip for the past 60 years.
Deflationary forces lie in the push factors that send a steady flow of people there to convert their gold-based valuables into cash, either through collateralized loans or outright sales. They are the victims of a moribund economy whose modest recovery from last year’s recession is failing to produce jobs or small business revenue growth.
Yet there’s also inflation at work. It’s there in the pull factors driving this business. Both the buyers and sellers on the street know that gold prices are near record highs around $1,200 a troy ounce and are seeking to exploit that. Gold’s gains reflect the broader concern that indebted governments will be forced to devalue their fiat currencies and create monetary inflation.
“It’s usually one or the other that drives this business. Either the economy has come down and people need money, or the gold value has gone up. But in this case it’s both,” said Roni Rubinov, who runs both a pawn broker and jewelry-buying business out of side-by-side offices on W. 47th Street.
He says the flow into his pawn business has, if anything, increased since the 2008 crisis. It’s a trend that reflects the persistence of deflationary pressures in an economy with 9.5% unemployment. Just look at Friday’s data releases: the U.S. consumer price index down 0.1% in June, average weekly earnings down 0.2% in the same month, consumer sentiment down almost 10 points in July.
The flow of pawn customers has increased because the depletion of people’s cash holdings has been “a gradual process” since the crisis, Rubinov said. “It’s not a sudden assault as if someone robbed them…it’s that the well is slowly drying up.”
“The way I’m hearing it, the banks are holding off on personal loans. I guess the public doesn’t have anything else to fall back on,” Rubinov said. He found a moment to talk during a brief break in the stream of clients coming up the stairs, each escorted by a scout from the street carrying flyers that say “We Buy Gold, Diamonds, Watches & Jewelry.”
His analysis of banks is spot on. The Federal Reserve’s latest monthly consumer credit data produced its 18th contraction out of the past 20 months.
Yet, inflation fears are equally powerful.
Yale Zoland, a third-generation jeweler two doors down from Rubinov, did virtually no gold trading until the price started to rise. Now it’s worth up to 15% of his revenue.
It’s a simpler, more commoditized business than the complicated diamond trade his family has traditionally handled. The customers come in and hand over their gold rings and necklaces to Zoland, who weighs them, verifies their carat stamp with acid tests and then offers the sellers a price a few percentage points below that day’s gold fixing. At the end of business, he sells the day’s intake to gold refiners, who melt it.
Given the current public mood, this trade seems unlikely to disappear soon.
It’s about the trust that was destroyed by the crisis, Rubinov said. “People are realizing now they need to have something tangible, not just a piece of paper.”
And yet it is paper — greenbacks, to be precise — that the people coming into his office most want.
Tags: consumer credit, Gold Prices, New York, Pawn Loans, pawnbroker, pawnshop
Posted in Pawn Ecomomics | 2 Comments »
Friday, July 2nd, 2010
From AZSTARNET Dot Com
NEW CITY FEE FOR PAWNSHOPS
All pawnshop transactions will cost a dollar
Brian J. Pedersen Arizona Daily Star | Posted: Friday, July 2, 2010
ALLISON MULLALLY / ARIZONA DAILY STAR
Sandro Sanchez, examines a pawn ticket at Gold & Silver Exchange, 4636 S. Sixth Ave., with shop owner Armin Cicala. Tucson’s updated pawn ordinance went into effect Thursday, adding a $1 fee for all transactions made at pawnshops and secondhand dealers as well as new licensing fees and reporting requirements.
The transaction fee is similar to ones other cities impose, said Sgt. Diana Lopez, a Tucson Police Department spokeswoman.
“Most other cities charge $2 or $3,” said Lopez, noting that TPD had originally asked for a $3 fee but later agreed to the lesser charge.
The fees are expected to offset about half the estimated $700,000 annual cost of TPD’s pawnshop enforcement effort.
Pawnshops are able to list up to three items on each transaction slip, Lopez said.
A local pawnbroker said the new fee will hurt cash-strapped pawn customers - who turn goods in for collateral on short-term loans - when they can least afford it.
“It impacts every transaction, and it’s going to be charged upfront … so if I loan you $20, you’re going to walk out the door with $19,” said Greg Geile, owner of local SuperPawn franchise shops and president of the Arizona Pawn Association.
Geile said the industry had offered to pay licensing fees as an alternative to transaction fees, to spread the costs out more fairly.
But the City Council adopted a recommendation by Tucson police that included both the new transaction charge and new license fee.
Other details of the ordinance:
• Any pawnshop or secondhand dealer that had 1,000 or more transactions in the previous year is required to pay an annual $1,000 occupational license tax, which is due each January.
• Dealers from outside the city must pay a $1,000 fee if they hold three or more shows during a year within Tucson city limits. For dealers holding one or two shows each year, the fee is $500.
• All pawnshops and secondhand dealers must electronically report transactions to TPD. Any item with a serial number or owner-applied number must be reported, regardless of value, while any transaction that exceeds $100 must be reported except for furniture, music and books.
The Police Department has compiled a list of frequently asked questions for businesses and the community. Go to the department’s website at tpdinternet.tucsonaz.gov/FAQ/ pawnfaq.html for more information.
Contact reporter Brian J. Pedersen at bjp@azstarnet.com or call 573-4224.
Tags: consumer credit, Pawn Fee, Pawn Loans, pawnbroker, pawnshop, Tucson AZ
Posted in Pawn Ecomomics | 1 Comment »
Monday, June 14th, 2010
Well written and painstakingly researched, the author does a wonderful job of exposing blatant corruption recently in some parts of the subprime lending industry. Rivlin does a masterful job at documenting events, people, and companies whose actions in part led to the current credit crisis and housing bust. A must read for any American wanting to know what really happened to their 401(k).
The author does show an unfortunate but understandable bias against any and all forms of short-term consumer credit offered to those who may be exempt from more mainstream transactions. This broad brush approach of condemning everyone offering credit to less fortunate Americans does a disservice to much-needed industries in the US. A vast majority of otherwise un-creditworthy consumers benefit greatly by some of these financial products.
I say this because I was a pawnbroker for 30 years and I now consult and offer business coaching within the pawn shop industry. My original reason for purchasing the book is because the pawnbroking industry is offered in the sub title of the book along with a very unattractive picture of a pawn shop, hopefully carefully chosen by the publisher and not the author, adorning the front of the book.
Funny thing is, the pawnbroking industry is barely even mentioned in the author’s book. It is possible Rivlin may have discovered in his research that pawn shop loans are a very worthy 3000-year-old form of credit that causes no one any harm and does not necessarily create debt. Maybe the author found out that pawnbroking transactions are not just about the working poor. Or maybe the choice of cover and subtitle were just a more iconic match to the title of the book rather than a picture of Wall Street financiers.
Tags: Broke USA, consumer credit, Consumer Federal Protection Agency, Credit Crunch, economic crisis, Gary Rivlin, Pawn Loans, pawnbroker, pawnshop, Payday Loans
Posted in Pawn Ecomomics | 1 Comment »
Thursday, May 27th, 2010
From Market Wire Dot Com
LONDON, UNITED KINGDOM–(Marketwire - May 27, 2010) - The recent surge in the price of gold has seen a huge increase in people choosing to take loans against or sell gold, rather than buy it. More people than ever before are now scrapping their gold items or achieving high loan amounts as gold values have rocketed in these uncertain economic conditions.
This is good news for pawnbrokers up and down the country, who are reaping the rewards of the constant supplies of gold provided to the international market. There has been a huge boom recently in people deciding to pawn gold, with many pawn shops appearing all over the country as a result. These increased prices mean pawnbrokers are able to offer customers much bigger loan values than previously as items are worth more providing greater security against the loans.
A spokesperson for Borro the UK’s first online pawnbroker says: ‘The increase in the price of gold came at a time when people were struggling to get a loan from banks, who were making it even more difficult to obtain finance and redundancies were rife up and down the country.
‘But as well as providing a way of getting from one month to the next, pawnbroking has also made people realise that they can afford luxuries through releasing extra cash from increasingly valuable items.’
Another factor which is likely to be attracting new customers to pawnbrokers, is the fact that credit ratings will not be affected if they cannot pay back a loan, as it would be by high street banks. Pawnbrokers traditionally sell off items if customers can not afford to pay back the capital and the interest, but credit ratings stay unaffected. So in that respect it is a low risk solution for many and with the incredible value of gold right now, this looks set to remain unchanged.
Headquartered in Oxford with offices in London, Borro.com was the UK’s first online pawn shop, changing the face of pawn broking by offering consumers a discreet, safe and hassle-free way to borrow money against their personal valuables.
Tags: borro.com, consumer credit, Gold Prices, Pawn Loans, pawnbroker, pawnshop
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Friday, May 7th, 2010
From Reuters Dot Com
Mexico micro-lender mulls pawn shop expansion
Thu, May 6 2010
* Firm sees pawn shop as gateway for borrowers
* Mergers expected in Mexico pawn sector
By Patrick Rucker
MEXICO CITY, May 6 (Reuters)- One of Mexico’s largest micro-lenders could expand into pawn shops to reach more borrowers who cannot access traditional forms of credit, the company’s chief executive officer said on Thursday.
Financiera Independencia typically offers unsecured loans as small as a few hundred dollars to borrowers who want to open or expand a business.
Many clients who cannot even qualify for a micro-loan turn to pawn shops, putting up personal items as collateral for cash loans at interest rates above 4 percent per month. Financiera Independencia could easily expand into that market, said board Chairman Jose Luis Rion.
“It appeals to me,” he said of the sector. “(Pawn shops) are an easier entrance for our customers.”
Many Mexicans are familiar with the corner pawn shop as a lender of last resort, where they can get cash using collateral like musical instruments, tools or other valuables. In a nation where large banks often ignore low-income borrowers, the hock shop is a familiar source of credit.
Rion said the pawn sector is ripe for consolidation and that a firm like his could introduce valuable efficiencies.
“You have some corporate pawnshops now that are consolidating and growing. I believe that in time there will be fewer competitors, more institutional, more corporate,” he told Reuters. “Right now we have our hands full but it is definitely an interesting market.”
Development agencies around the world have promoted micro-credit as a way to help small entrepreneurs but critics say many dominant players in the sector charge extortionate interest.
Rion said the high interest rates are justified because of the risk and expense of handling such loans.
“You have to collect, you have to call, you have to do paperwork. That can all account for 95 percent or sometimes more of the revenue from the loans,” he said.
Still, the business model can be profitable, with Financiera Independencia reporting a 21 percent net income increase in the first quarter over the year-ago period.
PAWN SHOP GROWTH
Loans made at Nacional Monte de Piedad, Mexico’s largest chain of pawnshops, rose about 20 percent during the first three weeks of January compared to the same period in 2009.
In late March, Financiera Independencia sold $200 million of senior unsecured notes that carry a speculative grade rating and the company is still digesting that capital.
“We just had this dollar issue,” Rion said, speaking in the wings of a mergers and acquisition summit. “We are considering options to give the stock more liquidity, more flow. We are really busy but if something like that comes and it looks fine, we will consider it.” (Reporting by Patrick Rucker and Luis Rojas Mena; Editing by Richard Chang)
Tags: consumer credit, Mexican Economy, Mexico, Pawn Loans, pawnbroker, pawnshop
Posted in Pawn Ecomomics | 5 Comments »
Friday, March 5th, 2010
By Bobbi Dempsey • Bankrate.com
If you’ve found yourself needing some quick cash recently, you may have considered heading to a pawnshop. You’re not alone. The bad economy has prompted many people to visit a pawnshop for the first time.
“We’re seeing more people who have never been in a pawnshop before looking for short-term solutions without having to sell the farm,” says Rick Harrison, whose family owns the Gold and Silver Pawnshop in Las Vegas and stars in The History Channel series, “Pawn Stars.”
You shouldn’t feel afraid or embarrassed about heading to a pawnshop, but there are some things you need to know.
Don’t believe the bad image
Pawnshops aren’t the shady, scary places they often appear to be in the media. “Pawnshops have been unjustly vilified by the main stream media, and so most people perceive pawnshops to be dirty and seedy,” says Harrison.
Instead, pawnshops are regulated by 12 federal laws plus numerous state and local laws,” says Emmett Murphy, spokesman for the National Pawnbrokers Association, or NPA. “The majority are clean, well-lit stores run by people who pride themselves on providing good customer service.” Murphy advises checking with the local Better Business Bureau, or looking on the NPA’s Web site for member stores in your area.
Getting the loan
Here’s how a pawnshop transaction works:
Pawnshops offer collateral-based loans — meaning the loan is secured by something of value. You bring in something you own, and if the pawnbroker is interested, he will offer you a loan. The pawnbroker then keeps your item until you repay the loan. The loan amount will likely be a small fraction of the item’s actual value.
You can sell your item to the pawnshop outright, but pawnbrokers are less enthusiastic about these transactions because loans offer much more profit potential for the pawnbroker.
You must receive a pawn ticket. Don’t lose this! Not only is it the receipt for your item, but it also summarizes the terms of your loan: fees, expiration date, description of your item, etc.
Repaying the loan
You have two choices on repayment:
Return to pay the balance — including the loan amount plus all added fees — before the deadline, which is usually one to four months after the initial transaction.
Don’t return and the pawnshop keeps your item. Aside from losing your item, there are no other consequences: no collection action and no affect on your credit report. On average, though, 80 percent of all customers do reclaim their items, according to the National Pawnbrokers Association.
In some locations, you can extend the loan period by up to several months, but you’ll incur additional charges.
The interest rate explained (… sort of)
The dollars and cents of pawnshop loans get a little complicated because: a) rules regarding the fees vary widely from state to state, and b) it’s not a cut-and-dried interest rate.
The term “interest rate” can be very confusing, so it’s better to think of total allowable “finance charge,” says Steve Krupnik of South Bend, Ind., creator of the Pawn Shop Advisor coaching program and author of the book “Pawnonomics.”
“Pawnshop loans are nearly all state-regulated, and ‘finance charges’ can vary from 5 percent per month to 25 percent per month. In Indiana, the ‘interest rate’ is capped at 36 percent APR or 3 percent per month, but pawnshops can charge an additional 20 percent per month service charge, making the total allowable finance charge 23 percent per month,” says Krupnik.
In New York, the maximum interest rate is 4 percent per month, and a service charge of up to $10. The interest rates may seem steep, but Murphy says these aren’t meant to be a substitute for bank loans.
“These are what we call ’safety net loans’ and are usually for life emergencies.” The typical fee, he adds, is often lower than the cost of a bounced check or a disconnected utility.
To learn the maximum rates allowed in your area — along with any rules regarding pawnshop transactions — check your state’s Web site; most likely, the information will be in the consumer protection section.
The bottom line: Make sure the pawnbroker clearly explains all the fees involved in your loan before you finalize the transaction. These terms also should be listed on your pawn ticket.
What pawnshops do — and don’t — want
When considering pawning something, keep these tips in mind:
Don’t: Offer anything outdated, difficult to store or cheaply made, Krupnik advises.
Do: Go with jewelry or coins, Harrison suggests. Other good choices, according to Krupnik, are firearms, high-quality tools and musical instruments.
Be prepared for red tape
The pawnbroker is legally obligated to confirm that you are the legal owner of the property.
“They will ask you enough questions about your property to become comfortable with the fact that you own it,” says Krupnik. “Do not be offended; the pawnbroker is just trying to make sure that both you and the property are legitimate. Also, if you do business with the pawnbroker, expect to have to show a government-issued ID. It is required by law.”
Tags: consumer credit, Credit Crunch, Economic Indicator, Pawn Loans, pawnbroker, pawnshop
Posted in Pawn Ecomomics | 1 Comment »
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