Thursday, April 3, 2008

The pawn shops are thriving

On the news last night there was a piece about how well pawn shops are doing right now. I’ve always been curious about which type of business would be best to own during a recession so this story really caught my attention. The news said that people have been pawning luxury items such as cars, jet skis, four wheelers, and RVs. Why does anyone own a jet ski, four wheeler, or RV if they are not financially stable? I know things can happen that you weren’t expecting but if you are pawning your jet ski before we are even officially in a recession then you needed a bigger E-fund. Actually, you shouldn’t have owned that jet ski in the first place. If you are out there and you don’t have an emergency fund but you do own a four-wheeler, a jet ski, or anything of that nature, sell it and sell it now. Take every last dollar you get from that sale and put it in the bank.

I’m not overly familiar with pawn shops so I did some reading. You can either sell your stuff or get a loan on it. You will get a little bit more money if you sell your item but you don’t get it back. If you get a loan on it then they will hold it for you and when you pay back the loan plus interest you can have your stuff back. In one article I read it said that the pawn shop will loan you about one third of the amount that they think they can sell the item for. The example they gave was if something cost $100 new and they can sell that item for $60, they will loan you $20.

In the news piece they mentioned that people are paying a 22% rate on their pawned stuff. That isn’t 22% annually. That is just a straight up 22%. So if you pawn something and receive $100 you have to pay back $122 at the end of the month. If you want to extend the loan you can pay just the $22 and extend the loan for another month.

I couldn’t help but think, can you pawn something that is financed? I looked around and didn’t see anything that said you couldn’t. So it’s possible that a lot of this stuff is already financed, that is pretty scary. If anyone knows for sure please let me know… I’m curious.

Picture by: Inkyhack



6 comments:

JB said...

So are pawn shops mainly thriving because people are getting loans ont their items?

I wouldn't think a lot of customers would go to a pawn shop and buy a bunch of junk during a recession... so they really can't be thriving in that area.

"Future Millionaire" said...

Pawing financed items really is scary.

Emily said...

Ditto! Sounds scary unintelligent to me. But these are turning into desperate times *sigh*

Jonathan said...

Yeah, I remember reading in 'Maxed Out' (a great, and tragic, book on credit abuse) that a lot of people with bad credit used pawn shops as a kind of high-interest credit card.

Like FM said, scary stuff.

Seb said...

What I want to know is, why even bother trying to pawn a jetski, car, or RV? I imagine you would get a lot more money for it if you just sold it on your own.

Even if you need to the money right away, most dealers will buy your car even if you aren't trading it for a new one.

Bryce said...

There is an interesting post at myvesta.org that says, "Before organized consumer credit, there were five major lending sources: pawnbrokers, illegal small-loan lenders, retailers, friends and family, and mortgage lenders."

Wikipedia says, Pawnbroking existed in China more than 3000 years ago, little changed from today. Myvesta.org points out that in the 1800s and early 1900s, "Pawnbrokers were known as the 'poor man's banker.' Large numbers of people routinely used the pawnbroker to get much-needed cash. Many were longstanding, repeat customers."

What has changed is the size of the pawned loan (they used to be for things like shawls, bonnets, shoes, and undergarments) and that people now have many other ways to go into debt.

Disclaimer: I am not a pawnbroker. I hate debt. I just like history and try to learn from the past.