Image: Pawn shop
Chris Hondros  /  Getty Images file
People wait to turn in valuables for cash at ‘EZ Pawn’ in the Harlem neighborhood of New York City. Pawn shops across the country are doing a brisk business as a combination of an economic slowdown and higher metal prices are driving people to turn in their jewelry for cash.
By M. Alex Johnson Reporter
msnbc.com
updated 10/15/2008 10:49:58 AM ET 2008-10-15T14:49:58

At People’s Pawn in Springfield, Mass., the collection of DVD players, televisions and other electronics just keeps getting bigger.

As many as 200 a people a day come in to “sell all their stuff so they can get gas money,” said Efren Rivera, who works at the shop. “Some people have to pay their mortgages.”

The story is similar at EZ Cash Pawn in West Palm Beach, Fla., where the shelves are so stacked with electronics, musical instruments, guns, fishing poles, scuba gear — you name it — that people are being turned away.

“I have no choice," said Robert DeSantis, the shop’s owner. "I have tools in the warehouse now — every single tool you can think about.”

With the economy in the tank and high energy prices eating away at Americans’ paychecks, pawnshops are prospering.

Unlike the bank, where tough times make it harder to get a loan, “with us, doesn’t matter what your credit is like,” said Todd Faircloth, owner of Georgia Loan and Pawn in Albany, Ga. “You can come in and borrow from us if you’ve got merchandise.”

Sometimes, pawning’s a good option
When you pawn an item, you are really taking out what financial professionals call a “secured non-recourse loan.” Sometimes, according to Jean Chatzky, a financial columnist and author of “Pay It Down: From Debt to Wealth on $10 A Day,” that loan might be your best option to cover an important bill.

Pawnshop loans charge interest, anywhere from 5 percent to 20 percent a month, depending on the merchant’s assessment of the merchandise and the reliability of the customer. At 20 percent, a $75 30-day loan repaid on time would cost the customer $15. By comparison, penalties for bounced checks and late credit card payments average double that.

Video: Choosing used over new

“Pawning can be a relatively less expensive option,” Chatzky said — but only if you pay back the loan on time. If you don’t, “you’re going to pay another month’s interest,” plus a storage fee, she said.

The National Pawnbrokers Association said 80 percent of customers reclaim their pawned property on time, providing a steady stream of interest income that increases as the economy worsens. With more people being driven in the doors by hard times, it’s a good time to own pawnshops.

The business has become so lucrative that First Cash Financial Services Inc. announced plans this month to shut its auto lending division so it could focus on its pawnbroker operations . The company, which operates more than 250 pawnshops and payday lending shops, said its pawnshop profits rose by 26 percent in the first quarter of the year, topped by a 39 percent rise in the second quarter.

“Our core pawn business is tremendously profitable and continues to grow at record levels,” said Rick Wessel, chief executive of the company, which expects to open 10 to 20 new U.S. stores by the end of the year.

Likewise, Cash America International Inc., which operates more than 500 pawnshops in 21 states under the Cash America Pawn and SuperPawn brands, reported that second-quarter profits rose by 52 percent over the same quarter last year. It projected that profits would rise by another 13 percent to 20 percent over that when it reports third-quarter results later this month.

“Higher loan demand continued our trend of increased revenue from pawn loans, and we experienced better-than-expected retail sales activity during the quarter,” said Daniel Feehan, the company’s president and chief executive.

‘Grills for bills’
Those retail sales are another way pawnbrokers make money.

Loans are typically made for about about half the value of an item. Whenever a customer defaults, the pawnbroker can offer shoppers a bargain while making a profit on the loan.

“Pawnshops have always done consistently very well in a down market,” said Randy Stormberg, owner of Bend Pawn and Trading Co. in Bend, Ore., who said business was up by 30 percent in his store. “They are there with merchandise at about half the price of new.”

Much of that merchandise is gold coins and jewelry. With the price of gold fluctuating between $800 and $900 an ounce, many pawnbrokers won’t even bother to offer a gold item for sale; instead, they will have it melted down for its raw metal, Stormberg said.

Pawnbrokers say they’re getting a lot of unexpected items from people hoping to cash in on the boom in gold.

Fort Myers Estate Jewelry and Pawn in Fort Myers, Fla., hit the headlines earlier this year when it reported that an unidentified athlete had pawned the gold medal he won at the 1980 Olympic Games. And across town at Larry’s Pawn Shop, Ryan Champagne does a brisk business in “grills for bills” — gold teeth.

“When somebody comes in, you don’t want to be handling their teeth. So I grab a paper towel and just weigh it like anything else,” Champagne said.

A couple of years ago, it was unheard of for someone to come in offering his or her gold teeth for sale, but “now, it’s a little more frequent than it was two years ago, there’s no question about that,” said DeSantis of EZ Cash in West Palm Beach.

“I expect to see a lot more — a whole lot more,” he said. “It’s not getting better. It’s getting worse.”

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