Have you been to a pawn shop before? If not, then this article will answer some of your questions regarding what they are and what they offer.
Pawnshops are important to many communities in the role they play as they offer easy ways of conveniently borrowing small sums of money. They make their money through sales of retail items, provision of personal loans, and other auxiliary services like cellphone activation, and money transfers value pawn.
In their business operations, they aim at generating profit margins between 15% and 25%.
Basic Operation Models of a Pawn Shop
- They provide a loan to their customers who surrender the custody of their items which is further used as collateral for the loan.
- The interest rate charged is quite high than many commercial banks due to the high risk that may occur from loan defaulting.
- The customer is always forced to forfeit the collateral property in case of failure to pay the full loan plus its interest.
What do pawn shops offer?
- Personal lending services
Individuals who surrender the custody of an item are always liable for loaning by the pawnshops. Some of the items accepted as collateral are television sets, computers, radios, and at times a house in case of a larger credit benefit.
After valuing the property, the loan offered is based on the item value and at times, the creditability of the pawnshop at the moment of lending. The interest rates are always high at pawn shops due to high cases of loan default. Their loan installment repayment is on monthly basis. In any case, pawn shops are always willing to extend the loan repayment period as long as the interest is paid for that month.
Their lending is always between 25% and 50% of the estimated resale of the pledged item for collateral.
- Pawn shops also help in reselling
Merchandise for sales in a pawn shop is from the pledged items from the customers who defaulted repaying their loans. They offer more money to purchase items than they do to lending against the item. So it would be cheaper to purchase an item from a pawn shop since the shopper is likely to get a larger profit margin for the customer may have paid part of the loan.
- They offer some auxiliary services too
Through this, they experience a lot of profit because they offer some services offered by shops at a fee. The auxiliary services offered are not limited to cellphone activation, check cashing, money transfer services like western union, and others like bill payment. Some also offer locations for shipping for FedEX or UPS.
How Do Pawn Shops Help?
- They are a financial lifeline to many
These shops are popular particularly for people who are not within the financial mainstream. Because many households are probably are unbanked, the services offered to these families such as title loans, check cashing and payday loans go a great deal in providing a lifeline to every day’s financial transactions.
They provide attractive low debt risk loans that do not require many financial regulations as other banks demand.
- One can pawn almost everything
Many people think of pawning almost everything when they are in a cash crunch. This may not be limited to Gold and guns which are seen commonly in many such shops. Not every store may be able to acquire everything you may be offering, different stores specialize in different types of items. You may find at times, items from obsolete electronics and their accessories stored differently from the rest.