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Wednesday, April 8, 2009
Features Business is (kinda) good for pawn shops
Posted By Rhiannon Fionn-Bowman on Wed, Apr 8, 2009 at 11:00 AM
"My son is going to try to make some money this summer, so he can help, too," she said, walking out the glass door, complete with black burglar bars. She bought the Wii for her son last August as a birthday gift.
With the economy's swirl down the toilet and the need for fast cash on the rise, it makes you wonder — how's pawn shop business doing these days?
Well, it depends on the product and the customer. Sales are down, but the number of people who want to sell their stuff is up. Pawn shops around the Queen City are also seeing a lot of return customers. They won't say how their sales are doing, though, since many of the stores in Charlotte are owned by national chains and even traded publicly on the Stock Market.
"At Christmas, everyone liquidated what they didn't need so they could afford gifts," said Sonny Horne, a gold buyer in Gastonia. He's quick to tell you what he does is different from what pawn shops do, calling the gold market, "Phenomenal."
Today, gold is trading for about $870 per ounce. That changes frequently, almost by the minute. Over the last year and a half, gold has hovered just over $700 and it's also hit more than $1,030. Remember: That's for one ounce of the yellow stuff.
People also sell silver, platinum, electronics, musical instruments, guns — anything that will bring value and pay the bills. Many folks, nearly 80 percent, don't actually sell their items. Instead, they accept a loan from the pawn shop and put down their precious goods as collateral. The pawn shop holds the "collateral" until the short-term loan is paid in full — with interest. Sometimes customers only pay the interest to avoid losing their pawned items, which inflates the overall cost of the item, often to several times its original value.
A pawn shop employee, who doesn't want his name to be used because the company doesn't allow employees to speak to the media, said most of his customers don't have good credit, so they aren't able to obtain credit cards or loans from the bank. "And most of them don't need that much, anyway," he said. "They're just looking to pay a bill or buy gas. Everyone says they'll come back to get their stuff. Most do, but some — you know when they're talking to you, you know they're not coming back."
If the customer doesn't pay the store back, the pawn shop has the right to sell the belongings they used as collateral on the loan. The problem, though, is there aren't enough buyers, people can't afford to buy their stuff back and inventory is high.
Pawn contracts are typically only for 30 days, though they are often renewable, and are heavily regulated by the state. According to legislation passed in the late 1980s, interest and fees can only total 20 percent of the loan's principle. So, for example, if you sell a diamond ring for $100 on May 1, then on May 31 you must pay $120 to get your ring back. For pricier items, fees are limited to $100 in the first month.
If you're one of those customers who can't pay off the item, but you're willing to pay interest-only, you would pay $20 per month. However, each month it will still cost you $120 to buy your ring back. Or, you could quit paying and let the store sell your ring to someone else. So, they make money from the interest on your loan and, if they can sell it, the item you pawned.
"Everybody needs money," said the pawn shop worker. "Nobody has any to buy anything."
That's not a problem for Horne, since he only deals in precious metals. "I can liquidate my store with a phone call," he said.
He sells most of the items he purchases to refineries or individual investors. He points out that traditional pawn shops can't do that because they have a variety of merchandise and many different types of buyers.
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