Paycheck to pawn shop: Americans financially ‘living on the edge’ are turning to pawn shop loans

Pawn shops are raking it in

Most people aren’t getting big loans from their local pawn shop. The average is about $150, according to the National Pawnbrokers Association.

“I think everyone always wants to make sure that they can cover their expenses,” says Little.

“When I see prices going up, and incomes not going up necessarily at the same rate, sometimes there's a gap there. And that's kind of where we come in, we come in to kind of fill that gap.”

About 30 million people who don’t have a bank, or access to bank services, use pawn shops every year, according to the National Pawnbrokers Association.

Little isn’t the only one seeing the increase in the need for pawn services.

Publicly-traded pawn shop lenders are having a banner year.

FirstCash Holdings, which has pawn shops across the U.S. and in Latin America, had a record-setting second quarter. Its revenue in the first half of 2022 was almost double what it made in 2021.

Likewise, EZCORP, Inc., another publicly-traded pawn shop company, says its outstanding pawn loans reached a record high of $204.2 million by the end of June 2022. Its total revenue increased 24% with gross profit increasing 20%.

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Pawn shop owners seeing a boom in business

Jack Wright, who together with his wife Pamela owns Wright Pawn and Jewelry, has seen a boom in business.

“It started a few months ago, and it was like almost an instant spark,” Wright says from his pawn shop in Houston. “It was amazing.”

Wright is seeing the same trend: People buying items when government subsidies were helping out, and then coming in to use pawn shop loans as the economy tightened and everything got more expensive.

Wright has been in the business for 30 years and recognizes the boom and bust pattern.

“The government was giving out a lot of money to people. And our loan allowances went down substantially. And now they're not getting that money, and they're wanting to make a lot of loans.” Wright said.

But the amounts are rarely huge, says Wright, noting that in Texas the average loan is $139.

“Shows you how many people are living on the edge,” Wright says.

How a pawn shop loan works

The rules will vary depending on your state, but essentially, you bring an item you want to use as collateral for the loan. Most pawn shops will accept a variety of items such as jewelry, musical instruments, electronics and tools.

The pawn shop will hold it for a specific amount of time – usually 30 days. Once the time period of the loan is up, you have a few options.

You can pay off the loan in full – with interest or fees – and get your item back. It’s possible you could also extend the term of the loan (if the shop allows it, this will come with increased interest and fees).

Most people – 85% according to the National Pawnbrokers Association – pay the loan and get their item back.

The other option is not paying back the loan and losing your item to the pawn shop, which will sell it at a higher price than the amount of your loan.

The advantage is that if you don’t pay the loan back, it doesn’t get reported and your credit won’t be dinged.

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The devil is in the details

Keep in mind that the shop will likely offer you a loan that’s only about 25% to 65% of the item’s resale value. So if you’re not paying off the loan, you could really be losing out on the value of your item.

And the interest rates can be huge. Some states limit how much interest a pawn shop can legally charge, but others don’t.

Let’s say you bring in a pair of earrings that the pawn shop gives you a $200 loan on. And after 30 days you pay that back along with a $25 fee, it may not seem like much, but that’s an annual percentage rate of over 150%.

So while the quick cash is tempting, it’s important to remember how much that convenient cash costs.