Pawnshops are emerging that lend money to cash-poor consumers with pricey collateral.
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If you've got a cash-flow problem and a rare Picasso painting lying around your house, you're in luck. A growing niche of high-end pawnshops wants your business.
That's right. The pawnshop, which has long toiled under the reputation as a seedy lender of last resort for the desperate, is going after the luxury market.
Some pawnshops are offering thousands to millions of dollars in loans, with items for collateral ranging from Rolex watches to Maserati cars to Super Bowl rings or fine art. It's a far cry from the average $150 loan on smaller items that are seen in the pawn industry.
"We're starting to see a trend of this becoming more popular," says Emmett Murphy, spokesman for the National Pawnbrokers Association.
Murphy says the pawn industry always has had some high-end loans, but the growth in these kinds of deals has surged since the downturn in the economy. Small businesses and consumers who normally were creditworthy have found themselves stuck in a credit crunch, without easy access to quick cash.
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Compare the average annual percentage rates offered on different loan products. Note: Not every product is meant to have a loan length of a year or more.
How Pawnshop Loans Stack Up Against Other Loans
|Payday loans||391% to 521%|
|Credit cards (for variable-rate cards)||About 15.5%|
|Auto loans (for a new, 60-month loan)||About 4.2%|
|Car title loans||36% to about 300%|
|Mortgage rates (30-year fixed)||About 4.25%|
|Pawnshop loans||36% to about 300%|
Sources: Center for Responsible Lending, Bankrate.com, National Pawnbrokers Association
Clients who are asset-rich, cash-poor?
Meanwhile, the pawnshop industry has been getting a makeover, thanks in part to TV shows such as "Pawn Stars" and "Hardcore Pawn" that helped change the image of the industry into "more of a mainstream financial service," Murphy says.
The shows have put "the pawn business in many people's living rooms," says Steve Krupnik, a pawn industry consultant and author of "Pawnonomics." He says the pawn industry is now realizing "the market for pawnshop goods and services is substantially larger than what was originally thought."
Tom McDermott is general manager for U.S. business with Borro, a pawnshop with storefronts in New York and London that's also online. It offers loans from $1,000 to $2 million. McDermott says half of his company's business is based on consumers who are "asset-rich and cash-poor," while the other half is made up of entrepreneurs and small businesses who need quick cash.
High-end pawnshops, a growing niche
McDermott says Borro saw nearly 100% growth in 2013, doing $50 million in loan volume.
"As banks increasingly became more constricting in their lending underwriting, people found they can get access to capital via their luxury assets," McDermott says.
Other companies have seen similar growth. The Beverly Loan Co., which has been in Beverly Hills, California, for about 75 years and calls itself the "pawnshop to the stars," opened a second location last year in the diamond district of Manhattan in New York.
"Someone may drive a Ferrari and have a Harry Winston diamond and artwork on their walls but not necessarily have cash in the bank," says Jordan Tabach-Bank, owner and chief executive of the Beverly Loan and New York Loan companies.
How Much Interest Do You Pay?
Pawn loans work differently from traditional bank loans. Because the consumer is offering up an item for collateral, pawnshops don't generally run credit checks or require a lot of financial paperwork. Instead, the loan is offered based on a percentage of the item's value. In addition, pawnshops tend to focus on short-term lending.
But the trade-off could be higher interest rates than a traditional loan.
Pawn loan interest rates tend to fall between 3% and 25% per month, Murphy says, with a 30-day loan at an interest rate of 10% being the typical rate. Murphy says pawn transactions are meant to be very short-term loans and are often lower than the cost of a bounced check.
The rates vary widely, depending on factors such as state laws and the size of the loan. For instance, New York law allows for a maximum 4% monthly interest rate, which could translate to an APR of 48%. Texas allows pawnshop lenders to charge as much as 240% annually, depending on the size of the loan.
The New York Loan Co. charges a 4% monthly rate, Tabach-Bank says. Borro's U.S. office in New York charges from 2.99% to 3.99% in interest per month for its loans, and generally offers six-month terms.
Pawnshops Put on the Glitz
The items coming into high-end pawnshops sometimes are rare.
Among the more unusual items McDermott has seen are a 2004 Olympic gold medal pawned by the medalist and a jacket owned by rapper the Notorious B.I.G.
Other things that have come through some of these upscale pawnshops: Steve McQueen's motorcycle jacket from the movie "Bullitt," a Salvador Dali watercolor, Beatles memorabilia, Lamborghini cars, Super Bowl rings and Fender classic guitars.
A few companies, such as Borro, Pawngo and iPawn Inc., have launched Internet businesses where consumers can send in items and get loans without ever stepping foot in a store.
Speedy Online Transaction
Dawn James, who owns a clothing boutique in Chicago, pawned a diamond ring with Borro earlier this year. She needed cash to buy some new inventory and contacted Borro, which sent her a secured safety deposit box through FedEx. She put the ring in it and shipped it back. The next day, she had her money.
"I'd never gone to a pawnshop before," James says. "Business loans take so long. That could have been two or three months before I got that money."
Some aren't surprised that the pawn industry is reaching out to consumers with deeper pockets.
"Everything is going luxury, including pawnshops," says Milton Pedraza, chief executive of the Luxury Institute, a research firm focused on high-end consumption.
Copyright 2014, Bankrate Inc.