When people think of pawn shops they think of dark seedy places that sell chipped furniture, grandma’s old jewellery, and worn-out electronics that have seen better days. However, this isn’t true. Just go through some of the pawnshops that are online and look at the visuals they have posted of their shop floors. They have display cases filled with gleaming jewellery and they look inviting. Better yet, find a pawn shop near you and just walk inside.
The business of pawnbroking has changed a lot over the last couple of years. Pawnshops aren’t for the poor only and not everything you find in there looks worn out or second-hand. Some people have at some point pawned items they have barely used. Some even come with the original packaging.
Modern pawnshops have evolved. They have gone from servicing loans averaging $100 to average loans of about $15,000. Pawn loans are now being used by an individual with a higher net-worth who might find themselves cash-poor but do not have the time to go to their local banks to apply for loans. Banks take too long to approve loans, even if the person applying has a good credit score and has been a good customer. Sometimes, the amount they need is significantly small, they would rather not involve financial institutions. Pawnshops for these people are an avenue to getting quick cash fast.
The pawn shop model isn’t that far removed from traditional asset-lending. The borrower applies for a loan based on the value of whatever asset they are willing to pledge as collateral, the asset is handed over for safekeeping. Once the borrower pays the loan with interest, he can get the asset back. If he fails to pay the loan back, he loses the items and the lender can resell them.
Standard pawnshops typically offer small loans, so one can pledge gold cuff links, some other jewellery, electronics, power tools, etc. They typically accept things they know are in high demand and can be resold quickly. In the case of a high-end pawnbroker, you might pledge a Rolex, Fine art, antiques, a Stradivarius, and even an Aston Martin. These are items with a value whose owners probably would not like to part with. A lot of high-end pawnshop customers are self-employed and have irregular cash flow. Most are people looking for quick loans to take advantage of certain opportunities or to take care of unexpected costs.
Pawn transactions are quick; they have no credit risk and in a lot of cases they are cheaper than having to sell the valuable outright. Most of these high-end pawnshops typically charge between 2.5% – 4% a month, compared to your typical pawnshop that averages 5-25 percent. High-end customers usually come back for their items. Most high-end pawnshop clients will take out more than one loan because they appreciate the ease and quality of service. And because a lot of pawnshops going online, it has added a layer of discretion that can help preserve their reputations. These aren’t people who want to be thought of as struggling financially so they can go on about their business without anybody knowing they have hit a financial bump.