Recession Profit Report: If Banks Aren’t Lending, Pawn Shops Are

The idea of needing money to make money, such as investing or patenting a new product, is relatively easy to understand. In order to mortgage a house, start a business or buy a car, consumers must also possess a decent amount of money. Yeah, these concepts are simple to understand, but the “getting the money” part is not.

The first place Americans focus their attention on when they want to borrow money is obviously a bank (unless they have really good friends!). Unfortunately for them, banks are growing increasingly hesitant when the topic of dishing out currency arises. In order to further understand why, I decided to speak with Lindsey at the Bank of America West Asheville Branch in Buncombe County, North Carolina. From what I gathered, the process relies heavily on a person’s income, any accumulated debt and most importantly, their credit history.

If I wanted to make a $500 loan, for example, I would basically be applying for a credit card (with about a 18-20 percent interest rate). I would take in two forms of identification, then wait up to 30 days to see if the bank approved me for the credit card. The bank also needs to know exactly what the loan is for (if it’s a car loan, they need info on the vehicle, such as the type, etc.) In other words, not just anyone can get a loan from a bank, and if they do, they have to play the daunting “waiting game.” With a pawn shop, the loan is instant, without having to answer a bunch of questions and reveal personal financial information.

So, can’t borrow money for that car you want from your bank because you don’t have the time/bad credit/don’t make enough money? Well, a pawn shop is an excellent alternative! I think Americans tend to stigmatize pawn shops; often categorizing them as places where only “crooks” or “low-lifes” frequent. Just one look at a typical pawn shop justifies this assertion; the windows usually have metal bars and the buildings themselves generally aren’t the most presentable. In fact, pawn shops (and the people who run them) are somewhat intimidating. So, this article is designed to smash that stigma, and provide with an insight on what pawn shops are, how they operate, and how they can actually work for you.

How Pawn Shops Work

Basically a person walks into a pawn shop and “pawns” (not “sells,” which the article discusses later) an item of value for a cash loan. To retrieve the pawned item, the person pays back the loan (with about 2 percent interest) and a “pawnbroker’s fee” (usually about 20 percent of the original loan). The best part about a pawn shop – you can get a cash loan AND get your valuable item back! Let me explain how this works in more detail…

The sole purpose of a pawn shop is to loan money, or purchase an item of value at about half of what it’s really worth in order to resell it; that’s how they stay in business and make money themselves. If the person does dot retrieve the item in 30-90 days (depending on that particular pawn shop’s policy), the item becomes the property of the shop for them to resell. Obviously a person can’t just walk into a pawn shop and ask to borrow the money; they need an actual item of value (which, of course, a bank does not). Since I’ve frequented pawn shops for the past few years, I’ve compiled a general list of what pawnshops usually accept for loans.

Jewelry: Usually about $20 per gram for gold. Higher loans are provided for precious gems and stones such as diamonds and rubies. The pawnbroker has special tools to determine what kind of stones are present, and if they are scratched or damaged.

Electronics: Since pawn shops are practically overstocked with electronics, they generally accept flat screen TVs made within the past few years, expensive, brand- name home stereos, and brand- name digital cameras with 8 megapixels or more. Surprisingly, you’re not going to get much for car stereo equipment, older brand name TVs, cell phones (if they even accept them) and video game systems (unless it’s a Wii or PS3).

Antiques: I recommend researching the value of your antique before presenting it to the pawnbroker. Unless you live in a large city, smaller pawnshops don’t have the knowledge to properly assess antiques. But, then again, it all depends on the pawnbroker.

Musical Instruments: Guitars (quality brand names only), amps, keyboards, mixers, DJ equipment, drum sets and band instruments (flutes, trumpets, etc.) are generally good for a loan of about 1/4 of what the instrument is worth new.

DVDs/CDs: $0.50 is the going rate for used DVDs and CDs (unless it is a Bluray, then recent releases might yield around $5.00).

Tools: Pawn shops generally accept any kind of power tool (power drills or chainsaws), and higher loans are provided for large power tools, such as paint sprayers and jackhammers.

Negotiating for a Larger Loan

If a pawnbroker recognizes your item has “pawnable” potential, the first thing he/she will ask is “how much do you want to borrow.” If you are confident and honest with your answer, chances are you’ll get at least a loan close to the one you expect. Keep in mind your really only going to get a portion of what the item is actually worth. For example, I needed to borrow $50 for an overdue bill. To get the money, I took a $250 Trek bike into Finkelstein’s Pawn Shop in Downtown Asheville. I knew they would not give me a loan amounting to the actual value of the bike, so I negotiated for the amount I needed to pay the bill. I could have negotiated for more money, but since I only needed $50, that’s all I asked for.

Selling an Item (Not Recommended)

In addition to pawning valuables, you can also sell your item to the pawn shop (in this case you could not retrieve it). I would not recommend this because you’ll get about the same amount of money whether the item is pawned or sold. With a little time and effort, you can sell your item on Craigslist or in the local newspaper’s classified section for close to what the item is actually worth.

Purchasing an item from a Pawn Shop

Surprisingly, this is an excellent way to get that car stereo speaker/power tool/video game at a fair price. Since all pawn shops test each item there purchased, you’re guaranteed that whatever you buy is actually in good working order. Pawn shops even let customers test electronics for personal reassurance. In fact, it is cheaper to buy a DVD from a pawn shop than rent one from a movie store!

In Conclusion

Pawn shops, despite their outside appearance, are actually great sources for quick cash loans. Now that I’ve explained how they work, and what items are “pawnable,” anyone can easily avoid the tedious, traditional way of getting a cash loan from a bank.