Do Pawn Shops Make Money

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Share All Share Options: It’s easy to assume that pawn shops are doing great during the pandemic. Also wrong.

Do Pawn Shops Make Money

The 2020s have been a rollercoaster for America’s pawn shops — and not in the way you might think. Getty Images/iStockphoto.

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Emily Stewart covers business and economics and writes The Big Squeeze newsletter, exploring how ordinary people get squeezed under capitalism. Prior to joining, he worked at TheStreet.

Perry Lewin has been in the pawnshop industry for 28 years, but he’s never seen a year like this. Sales have skyrocketed at her Decatur jewelry and antiques store in central Illinois. At the start of the pandemic, people stocked up on TVs, guitars, gaming systems, laptops and more to stay busy and study at home.

“We couldn’t put the bike in storage to save our lives,” Lewin said. Tools were flying off the shelves as many families decided it was a “great time for a sweet to-do list.” He estimates that his gun and ammunition sales are up 500 percent. “You know how March and April were, terrible,” he said.

Pan they fight. It is essentially a business of money, not of things. The bread and butter is borrowed.

Economy, Pandemic Create New Role For Pawnshops

“What happened is that our inventory started to decline rapidly, as a result of consumers not needing PAN services,” Lewin said, explaining that for much of 2020, its core lending segment has declined significantly. “They didn’t bring goods. We either sold or borrowed, but they took everything from us.

Pawn shops are a long-standing fixture of the capitalist economy – one pawnbroker told me that pawn shops are the second oldest industry in the world. (He asked me if I knew who was the oldest; I assured him I did.) But most of the public, especially those who don’t use their services, are pretty clueless.

I spoke with pawnbrokers across the country about how business has fared in this unprecedented year, and the picture is a microcosm of an economy that has flown under the radar for many. Pawn shops, which were considered indispensable during the pandemic, experienced a real-time panic trend of guitars, guns and gold. They also felt the impact of the CARES Act, putting money in people’s pockets and small business coffers because it meant people didn’t need loans.

“We have loans where customers who have been with us for a long time — 10 or even 20 years — are now completely redeeming things, which they never did before,” said Eric Modell of Modell Financial, which owns a New York Chain of jewelry stores and pawn shops. “And they don’t say, ‘I got money from the government, here I am,’ but you pay interest for 20 years.”

People Turn To Pawn Shops For Gold, Household Items

But now that much of that support is gone, debt is back. People return to the store.

When the pandemic hit, many had similar thoughts on how to spend time at home and what they should buy to do so. They turned to Amazon, of course, but also to pawn shops. Brokers say they cannot keep entertainment items, musical instruments, laptops and tablets in the cupboards.

But people didn’t just shop for entertainment and learning. They also buy to reduce panic.

“I don’t know why they wanted a weapon against the virus, but I didn’t tell them”

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Gun sales were huge in 2020, and some penbrokers I spoke with said they didn’t see a sustained boom in gun and ammunition sales right away, especially among first-time gun buyers.

Troy Farr, who owns Texas Pawn & Jewelry outside Austin, visited one of his stores one spring Saturday to see how things were going and saw 42 guns sold, “which is a lot for a pawn shop.” 41 of them were with new gun owners. “I don’t know why they wanted a weapon against the virus, but I didn’t tell them,” he said.

Supply chain issues during the pandemic have complicated what gun dealers would otherwise see as relatively positive growth in firearms sales, especially when it comes to ammunition.

Before opening his store in Fayetteville, Tennessee, Rob Barnett worked in his family’s pawnshop operation in Huntsville, Alabama and spent decades in the firearms business. He says he has never seen supplies in worse condition and perceived hoarding made things worse. “When people start realizing there’s a shortage in the industry, people start getting anxious and buying things they don’t want,” he said.

How Do Pawn Shops Make Money

Guns aren’t the only thing people are buying for excitement, they’re also buying gold, which has been rising fairly steadily for most of the year.

“Even though gold prices have gone up due to Covid, people have felt the stability of gold and invested in gold,” said Jordan Tabach-Bank, owner and CEO of Premium Pawn Brand Loan Company. which operates in New York, California and Chicago. When people think the world might be going to hell — and the 2020s have given them plenty of reason to think so — they buy gold.

Everyone knows the tropes of Hollywood pawnshops – the creepy guy smoking behind the counter at a CD corner store, with a stolen TV from someone, maybe he’s going to buy drugs. But this is not reality. For one thing, it’s easy to sell stolen items online because pawnshops are pretty tightly regulated. But in recent decades, the industry has also struggled to rebuild its image.

Pawn shops are a collateral, non-recourse provider, which basically means that loans are made not based on someone’s credit history, but based on the value of the item, be it a TV, a ring, a hammer, or whatever. . The duration of the loan and its interest often depend on the state.

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For example, in New York, stores must hold goods as pawns for four months and charge no more than 4 percent interest per month; In Texas, this is a month when most items are subject to a 15-20 percent tariff. People can sell their items directly to pawn shops, but that’s not usually the business model and not what most people do.

“The worst case scenario with us, you lose the ring, you lose the watch. We don’t freeze your wages, we don’t cut your credit, we don’t prevent you from owning a home.”

Basically, you bring your watch, get a loan, buy a ticket and pay off the loan and interest, returning at some point in the future to break the watch. If you don’t come back to repay the loan, or at least not pay the interest (some people leave things in pawnshops for years), the pawnbroker can keep your watch and sell it.

“The worst case scenario with us, you lose the ring, you lose the watch. We don’t garnish your wages, we don’t lower your credit, we don’t keep you from owning a home,” Tabach-Banks said.

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According to the National Pawn Shop Association, there are about 10,000 pawn shops nationwide, employing about 35,000 people and serving about 30 million customers each year. The stores run the gamut from publicly traded pawnshop companies like EZCorp and FirstCash to small mom-and-pop operations. Many pawn shops are multi-generational, not only in ownership, but also in customers.

Pawn loans are “like clockwork for many of our customers,” Modell said. “There are people who live and breathe pawn shops.”

NPA estimates that pawn loans average $150 for 30 days and about 85 percent of loans are repayable. This can vary depending on the item – people are more likely to retrieve family heirlooms than the general.

Pawn shops generally serve people with no credit or bad credit, although there are exceptions. They are compared to payday lenders, who often prey and lure people into a cycle of debt. Are pawnshop interest rates great? No. But they’re also not the worst for those who don’t have many options.

How Pawnshops Make Money

“Pawn loans are definitely one of the more expensive forms of credit, but they often cost less than a payday loan or car title loan and are much less likely to lock consumers into a long cycle of debt,” says Charla Rios. Researcher of the Center for Responsible Lending. “There are cases where people bring in things and they are in debt for a long time.

He also noted that the industry was not really growing. “Prior to Covid-19, returns from pawnshop loans were good

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