The popularity of pawn stores has increased due to the mainstreaming of store design and limited short-term credit alternatives for the non-banking population. The pawnshops of today have rejected the small, dark environments located in low income areas and have elected sites in middle-class neighborhoods with facilities that resemble modern retail environments.

Although the industry has grown considerably, the dominant segment, estimated to be 94 percent, remains in the control of individuals who own fewer than three stores and in most cases are single store owners.  Smaller operators tend to loan less “per item” than larger chains with greater cash resources.  With the borrower interested in maximizing their cash, the small store owner is in jeopardy of losing their customer base. This has become an increasing problem for undercapitalized store owners.

Over the last several years the pawn industry has begun to experience consolidation as larger companies, with more experienced management teams that are well-versed in the acquisition of growth capital and retail management, are beginning to gain market share by purchasing individual  “Mom-and-Pop” stores.  Analysts suggest this process is in the early phase as the major chains continue the consolidation of a highly fragmented industry.  This process has added visibility to the earnings potential of pawnshops and introduced new technology to the management of the assets.

Pawnshop loan customers are usually employed and  most generally paid weekly. However, in recent years pawnshops have served a broader range of customers and socio-economic backgrounds whether they seek a loan, are interested in buying discounted quality merchandise or simply using the store to liquidate unused merchandise.  Statistics show that 70 percent of patrons are repeat customers.  Back to Top

Pawnshops provide short-term secured loans and sell pre-owned merchandise to the value conscience consumer.  Most pawn loans are for less than $500, the most frequent loan is $20, and the average loan is about $70.  These loans have fallen below the “radar” of traditional financial institutions.  Traditional credit sources have exited the small loan market because they could not recover the administrative costs of these small loans without substantial increases in rates and charges.  Loan customers who frequent pawnshops are known in the industry as the “non-banking public.”  These are individuals who by choice or necessity operate on an all cash basis.  The potential size of the market of consumers with occasional short-term loan needs is estimated at 50 million people.  For these people, pawnshops fill an economic need, supplying cash conveniently and quickly.  Back to Top

Pawnshop service charges, like usury rates, are established and monitored by individual state regulatory agencies.  States with formal regulations are the most attractive to pawnshops because of reduced competition from unscrupulous dealers. The number of states with favorable regulations continues to expand as the industry's image improves. Service charges cover the cost of processing loans, evaluating the collateral, reporting loan activity to the appropriate authorities, storing and insuring the customer’s item and offsetting defaulted loans.  For these reasons, many states allow pawnshop service charges as high as 25 percent per month.

Pawn loans have become an economic necessity because most small loans have fallen below the "radar screen" of traditional banks and financial institutions.  Traditional creditors increasingly have exited the market of small loans due to servicing costs, default rates, and the complications of storing and disposing of unconventional collateral.  Most pawn loans are for amounts less than $400, with the average loan about $70 and the most frequent loan is about $20.  Pawn loans are made on the pledge of personal property typically for a maximum of sixty (60) days.

The loan training process begins with service to the customer. Employees are reminded to put themselves in the customer’s position and be empathetic to their needs.  They are encouraged to alleviate any anxiety the customer might have about the loan process and help them feel comfortable about the security and safety of their pledged items.  The majority of collateral for loans consists of jewelry, sporting goods, electronic equipment, tools and appliances.  To qualify as collateral for a loan,  items must be in good working order.  Testing of pledged collateral is a major consideration in the lending process. All loan collateral is tested to reduce the possibility of accepting  broken merchandise.  It is against POC policy and a violation of the law to make a loan on an item that has had the serial number altered or removed.  Back to Top