Pawnshops represent one of the oldest industries in the world and they have certainly returned to fashion in recent years, with several advantages for those seeking loans or bargain purchases. Many have transformed into soulless type retail environments in an effort to dissociate from the rather seedy image of old. Once associated with fenced stolen goods they are now strictly regulated with many states requiring that shops report to local law enforcement when they make a pawn transaction. This leaves them wide open to scrutiny and these days only a minimal percentage of stolen goods are fenced through the pawn industry.
Pawn brokers issue interest bearing loans to those who wish to pawn items for hard cash. A payment agreement is drawn up, with the borrower typically having 30 days to redeem the pawned item, by repaying the loan plus interest. At the end of 30 days if the item is not redeemed the pawn broker may then try to sell the item. Pawnbrokers will typically extend loans to those not in a position to redeem their collateral, upon request. Typical interest rates on such loans equate to about 120% APR or more, but are short term. Some pawnbrokers may charge extra for storage or insurance but they must document their charges in writing.
The America Pawn Exchange describes their typical customer as “a hard working parent who’s had an unexpected bill and is between pay checks.” There are many repeat customers who return to borrow against, and redeem, the same item between pay days. Somewhere above 10% of Americans have no bank account, and thus would not qualify for any alternative form of credit. Even pay day loans require a bank account. Many people effectively rely on pawn shops to act as their bank. Obtaining a needed cash advance from a pawn shop may be their only option.
The advantages of using a pawn shop over other kinds of borrowing are the speed of obtaining the cash, and no credit check. Whilst pay day loans are issued without credit checks any late payments or defaults are generally reported to the credit bureaus. Those who fail to make the payment on their pawn goods do not have their default reported anywhere, as the pawn broker is already in possession of the collateral which they are then free to sell on. Thus the pawn broker can make a profit on the actual sale price of the item.
Pawn shops issue loans on a myriad of goods including firearms, jewelry and electrical appliances. Unredeemed goods which are then offered for sale can represent a good buy for consumers, at less than typical retail price. Many pawn shops have now introduced a layaway service to their customers, or special layaways for the holiday season.
Many offer better terms than traditional retailers by offering the service fee free. Plano pawn shops for instance offers used goods for sale for $10 down and then repayments over 6 months. These can be very convenient for cash strapped purchasers who cannot afford to purchase an item straight away. Unlike traditional merchants pawn shops can’t just order another item when something is sold, as they rely on the goods which are brought into them.
Thus the advantage of pawn shops is that they act as a bank for consumers who have no bank accounts, provide speedy access to loans, and are licensed and regulated. Those who pawn items lose no more than their collateral if they fail to repay the loan, but their credit file will not be negatively impacted and they won’t receive collection calls. Purchasers can find bargains and be assured that they are not purchasing stolen goods, and even in some instances benefit from a layaway service to reserve what they cannot afford to purchase on the spot.
Pawn shops provide a viable alternative to pay day loans without the risks of being caught up in a cycle of pay day loan debt. With over 40,000 pawn shops across the nation the stigma of using pawn shops has diminished and they are becoming far more evident in mainstream culture.
Sources: American Pawn Exchange & Plano Pawn.