Long before credit cards made buying things on credit so easy, pawn shops provided fast cash for collateral, loaning money with high interest rates for merchandise until the owner could come back and repay the loan. TV shows like “Pawn Stars” show the growing popularity of pawn shops. They are serving the needs of cash-strapped individuals willing to part with treasures for quick cash.
Recently, with the changes in the banking industry, the tightening of lending in general and more people out of work, pawn shops are more than fast cash. They are more than a funky discount retail store. In some cases, they are replacing banks with a widening array of services.
It’s not that all banks are in trouble. The Huffington Post reported that the big banks, like Bank of America, CitiGroup and Wells Fargo all posted big gains. They are lending money, but have to deal with increased regulations—the result of the real estate mortgage fiasco. As long as a borrower fits into a narrow profile, the big banks can make loans. If you don’t fit the profile, you’re out of luck.
Smaller community banks have less assets than they used to. Bank mergers are on the rise, as more and more fail. With community banks disappearing or offering fewer services and big banks standing firm on their strict eligibility for loans, the consumer is the one who suffers the most.
Enter the pawn shops, which are used to taking risks and opening their doors to anyone who has something of value to pawn. Pawn shops are like banks that are also retail stores. They make money on the loans they make and, if you don’t reclaim your possessions, they sell the merchandise.
Like any entrepreneur who sees an opportunity to expand, pawn shops are stepping in to fill the void with services found at banks. They offer check cashing, money orders, Western-Union money transfers, as well as loans. And business is good. The FDIC reported that one out of four Americans doesn’t have a bank or can’t access banking services. Even though pawn shops charge between 2.5 percent and 25 percent a month interest, they fill a need without long pre-qualification forms to fill out, credit checks or references.
What pawn shops offer that banks can’t is unqualified acceptance. Walk in the door with your merchandise and make a pitch. Just like “Pawn Stars,” what the person thinks an item is worth or asks for isn’t necessarily what they will get. But after some negotiation, a person can walk out with some cash. Not so with banks. No job? No loan. No equity in your home, no loan. No qualifying income to debt ratio? Goodbye. Not so with the pawn shops. What they offer is services without a lot of questions. Consequences, yes. High interest rates, maybe.
Just like retail stores with weekly sales, quick loans bring people into the pawn shop. More traffic in the shops means more customers who might buy something. Pawn shops are great places to shop on a tight budget for merchandise, just like Goodwill or a consignment shop is a great place to buy clothing and other small items. With unemployment hovering around 7.4 percent, pawn shops have a lot of potential customers for both retail and financial services.
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