Millions of people splurged on pawnshops during the pandemic — now cash-strapped Americans are reporting these stories. Here’s what you need to know before you pawn anything
At the height of the pandemic, Fieldstone Jewelry and Pawn owner Lisa Little said people were coming to her pawnshop to buy everything they could get their hands on, from game consoles to guitars — to help to fill the time while they were stuck at home.
Now Little sees a “reversal of that trend” as the rising cost of living pushes customers to bring those things back for quick cash.
And his store in Conyers, Georgia, is far from alone in experiencing this influx of items.
“I think people are worried about whether they’ll be able to pay their bills this month, next month,” Little says.
Pawnbrokers can be an easy way to get cash in a snap, but let’s look at the fine print.
Pawnshops rake it
Most people don’t get big loans from their local pawnshop. The average is around $150, depending on the National Association of Pawnbrokers.
“I think everyone always wants to make sure they can cover their expenses,” Little says.
“When I see prices going up, and income not necessarily going up at the same rate, sometimes there is a gap. And that’s kind of where we step in, we kind of step in to fill that void.
According to the National Pawnbrokers Association, approximately 30 million people who do not have a bank or access to banking services use pawnbrokers each year.
Little isn’t alone in seeing the growing need for pawnshop services.
Publicly-listed pawnshops are having a banner year.
FirstCash Holdings, which owns pawnshops in the United States and Latin America, posted a record second quarter. Its revenue in the first half of 2022 was almost double that of 2021.
Similarly, EZCORP, Inc., another publicly traded pawnbroker, says its outstanding pawnbrokers reached an all-time high of $204.2 million at the end of June 2022. Its revenue total increased by 24% and its gross profit increased by 20%.
Store owners see business boom
Jack Wright, who along with his wife Pamela owns Wright Pawn and Jewelry, enjoyed a business boom.
“It started a few months ago, and it was like an almost instant spark,” Wright says from his pawnshop in Houston. “It was amazing.”
Wright sees the same pattern: people buy things when government grants help them, then come to use pawn loans when the economy tightens and everything gets more expensive.
Wright has been in the business for 30 years and recognizes the boom and bust pattern.
“The government gave a lot of money to people. And our loan allocations have gone down significantly. And now they don’t get that money and they want to do a lot of loans. Wright said.
But the amounts are rarely huge, says Wright, noting that in Texas the average loan is $139.
“Shows you how many people live on the edge,” Wright says.
How a pawnbroker works
The rules vary depending on your state, but essentially you bring an item that you want to use as collateral for the loan. Most pawnshops will accept a variety of items such as jewelry, musical instruments, electronics and tools.
The pawnbroker will hold it for a period of time – usually 30 days. Once the term of the loan has passed, you have a few options.
You can repay the loan in full – with interest or fees – and get your item back. You may also be able to extend the term of the loan (if the store allows this, this will lead to increased interest and fees).
Most people – 85% according to the National Pawnbrokers Association – repay the loan and get their property back.
The other option is to default on the loan and lose your item to the pawnshop, who will sell it and possibly for much more than your loan price.
The advantage is that if you don’t repay the loan, it isn’t reported and your credit won’t be damaged.
The devil is in the details
Remember that the store will likely offer you a loan of only 25-65% of the resale value of the item. So if you don’t repay the loan, you could really lose the value of your item.
And the interest rates can be huge. Some states limit the amount of interest a pawnbroker can legally charge, but others do not.
Let’s say you bring in a pair of earrings and the pawnbroker gives you a loan of $200 in exchange for the item. After 30 days, you are able to repay the loan plus the $25 service fee and get your item back. This fee may seem small, but it is an annual percentage of more than 150%.
So while quick money is tempting, it’s important to remember how much that convenient money costs.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.