On the news last night there was a piece about how well pawn shops are doing right now. I’ve always been curious about which type of business would be best to own during a recession so this story really caught my attention. The news said that people have been pawning luxury items such as cars, jet skis, four wheelers, and RVs. Why does anyone own a jet ski, four wheeler, or RV if they are not financially stable? I know things can happen that you weren’t expecting but if you are pawning your jet ski before we are even officially in a recession then you needed a bigger E-fund. Actually, you shouldn’t have owned that jet ski in the first place. If you are out there and you don’t have an emergency fund but you do own a four-wheeler, a jet ski, or anything of that nature, sell it and sell it now. Take every last dollar you get from that sale and put it in the bank.
I’m not overly familiar with pawn shops so I did some reading. You can either sell your stuff or get a loan on it. You will get a little bit more money if you sell your item but you don’t get it back. If you get a loan on it then they will hold it for you and when you pay back the loan plus interest you can have your stuff back. In one article I read it said that the pawn shop will loan you about one third of the amount that they think they can sell the item for. The example they gave was if something cost $100 new and they can sell that item for $60, they will loan you $20.
In the news piece they mentioned that people are paying a 22% rate on their pawned stuff. That isn’t 22% annually. That is just a straight up 22%. So if you pawn something and receive $100 you have to pay back $122 at the end of the month. If you want to extend the loan you can pay just the $22 and extend the loan for another month.
I couldn’t help but think, can you pawn something that is financed? I looked around and didn’t see anything that said you couldn’t. So it’s possible that a lot of this stuff is already financed, that is pretty scary. If anyone knows for sure please let me know… I’m curious.
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