Pawn shops are great places for people to loan and sell their items, allowing them to access a source of cash quickly, but some people are wondering, how else do pawn shops make money?
There are a few ways that pawn shops make money, and it is important for pawn shop owners to make sure they access every revenue stream available to them.
Pawn Shops Offer Loans and Sell Retail Items
There are several ways that pawn shops make money. The first way is that they purchase items from people and then try to sell those items at a profit. In general, pawn shops attempt to generate a net profit margin of 15 to 25 percent. For example, if someone needs a quick source of cash, they may sell an item of jewelry to a pawn shop for $100. Then, that pawn shop might try to sell that item of jewelry to someone else for $125. This would provide the pawn shop with a net profit of $25.
The other way pawn shops can make money is by offering personal loans. For example, someone with the same piece of jewelry above may decide that they need a loan to cover an upcoming bill. Therefore, they will use the jewelry as a source of collateral. Because they are collateralizing the loan, the pawn shop is taking on less risk, so the person applying for the loan might be able to secure a lower interest rate.
The person might receive a loan from the pawn shop for $100, and that $100 might be due back with 10 percent interest per month. If the person pays back the money in three months, then they owe $130 in exchange for the return of the ring. If they do not pay back the money, then the pawn shop keeps the ring. In general, pawn shops charge interest rates between 5 and 25 percent. This industry is governed at the state level, and the regulations can vary significantly from state to state.
With multiple revenue streams available, the pawn shop industry is worth about $6 billion per year.
How Do Pawn Shops Vary From State To State?
As mentioned above, pawn shops are regulated at the state level. This means that the regulations can vary significantly from state to state. As an example, in California, pawn shops are limited to charging no more than 2.5 percent interest per month, which is approximately 30 percent per year. In Alabama, the limit is ten times as high, with pawn shops being able to charge approximately 25 percent interest per month. Therefore, it is important for pawn shop owners to understand how much they can charge in different situations. There might be other regulations with which pawn shop owners need to be familiar.
How Many People Go To Pawn Shops?
There are lots of people in the United States who visit pawn shops regularly. According to information published by the National Pawnbrokers Association, approximately 7.4 percent of all households in the United States have visited a pawn shop at least once. Furthermore, the overwhelming majority of people who take out a loan from a pawnshop are able to pay it back. Published statistics indicate that pawn shop customers are able to pay back the loan in 85 percent of cases. This makes pawn shops a convenient location for people to access a quick source of cash.
How Much Money Comes From Selling Versus Loaning?
There are lots of large pawn shop chains throughout the United States, and many of them have made their revenue numbers public. For example, according to a report published by EZ Corp, the vast majority of their money comes from fees and loans. About 63 percent of their revenue comes from loans and the fees attached to them. Approximately a third of their money comes from the direct sale of items they have. These are items that they have purchased from their customers or they are items from customers who have defaulted on their loans. Therefore, there are multiple opportunities for pawn shop owners to make money.
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