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  • Can Pawn Shops Go Mainstream?

    Can pawn shops go mainstream?

    With the economy still sour, an online pawnbroker gets a cash infusion from some big names in an attempt to tap the middle-class market.

    By doubleace on Fri, Jun 17, 2011 11:49 AM

    This post comes from Lynn Mucken at MSN Money.

    Approximately one quarter of Americans report that they would certainly not be able to come up with ($2,000 in 30 days) and an additional 19% would do so by relying at least in part on pawning or selling possessions or taking payday loans. National Bureau of Economic Research report (May 2011)

    Groupon founders Eric Lefkofsky and Brad Keywell, who … now run an investment group called Lightbank, are onto the next big thing in e-commerce: pawn shops. — All Things D (June 7, 2011)

    Call this what you want — a stunningly sad reflection of the state of the U.S. economy or a sterling example of American entrepreneurship stepping up to fill a need — pawning your belongings appears to be going mainstream. 

    First the popular “Pawn Stars” on the History Channel, now some serious financial backing as Internet Pawn, which reported making about 1,000 loans worth $1.4 million since it was founded in 2009, has been turned into Pawngo.

    There’s definitely a market.

    “While financial fragility is more severe among those with low educational attainment and no financial education, families with children, those who suffered large wealth losses, and those who are unemployed, a sizable fraction of seemingly ‘middle class’ Americans also judge themselves to be financially fragile,” said the National Bureau of Economic Research report. Post continues after video. 

    The new poor may not have money, but they still have a sense of dignity: If forced by circumstances to pawn great-grandma’s china set or their wedding rings (pawnbrokers love that gold), they don’t want to be seen carrying stuff into a pawn shop. Pawngo “eliminates the intimidating feeling walking into a brick-and-mortar pawn shop in a seedy part of town,” according to a Lightbank statement quoted by WalletPop.

    Here’s how a typical pawn shop works, as described by Time magazine:

    Pawn shop companies make money by giving short-term loans to customers who offer jewelry, electronics, tools, musical instruments and other merchandise as collateral or by purchasing merchandise outright from customers at a steep discount.
    Loan terms are typically one to three months in length, with customers expected to cough up monthly storage and loan-servicing fees of 10% to 20% a month. If a customer fails to make a monthly payment, the pawn shop, following a grace period, can sell the item.
     Although pawn loans are far pricier than credit card and bank loans, they also are faster, don’t require complicated paperwork and don’t affect one’s personal credit. Since the loan is backed by merchandise, if the loan isn’t repaid, the person simply loses the pawned item — “whereas with other types of loans, I could lose my house or car,” says Henry Coffey, a senior analyst at Sterne Agee & Leach.

    In addition to the privacy offered by using the Internet, here is how Pawngo works, according to WalletPop and All Things D: