Alternative lending sources

While much is heard about payday loans or other types of short-term financial lending options, one option is gaining more publicity: the pawn shop. You may recall certain images about pawn shops from movies like ‘Men in Black’ or crime shows on TV, often portraying negative connotations (alien takeovers, aside). Thanks in part to reality television and shows like Pawn Stars, many myths are being dispelled about an industry that often gets overlooked in the press.

According to the National Pawnbrokers Association, there are over 13,000 pawn stores in the United States serving over 30 million customers per year. The national average loan is $80, and 80 percent of customers repay their debt. While these numbers are truly estimates since only publicly held companies legally have to report their earnings, it still gives a glimpse into the industry. In reality, pawnbrokers are professional business people who must adhere to federal and state laws as any other business. With an increase for the price for gold, as well as a struggling economy, the pawn business has seen an increase in customers who need short term lending options.

The Courier-News, a Chicago Sun-Times publication, recently reported on pawn shop activities in the towns of Elgin and Evanston, Illinois, giving a slice of what pawn shops across the country are experiencing. The owner told stories of recent customers, including several business owners who could not meet payroll and opted to put down items for collateral in order to pay employees. The owner also saw a rush on activities before property taxes were due in April from customers securing last minute needs. On average, 89 percent of loans are repaid in his stores, greater than the national average.

While legislation is stalled in many states to put limits on interest rates for payday loans, the pawn industry is already mandated at 36 percent interest per year. For many customers, this can be a better deal in the long run than turning to payday lenders or car title loan businesses. No credit check is run and nothing is reported to national credit bureaus.

While you may have an impression that pawn shops take in a lot of stolen goods or deal exclusively with seedy or low-income segments of the population, the average customer is middle-class and needing some extra cash due to an emergency or other circumstance. Put aside that image of the dark and dingy pawn shop; Chumlee is likely giving your neighbor a great deal that in the long run might not cost as much as you’d think.