The electric bill is due in a few days, but your remaining funds are set aside for the weekly groceries. What do you do? If you have a gold ring or an iPad that you can live without for a few weeks, it could be your financial savior.
With banks drastically reducing lending, more people are turning to pawnshops when they need quick cash. Once known as dark, dingy and sometimes dangerous, pawn stores are becoming more financially acceptable and even the fodder for reality TV hits such as the History channel's "Pawn Stars."
Pawnshops have typically specialized in small loans of less than $100. But now they're giving out larger loans and receiving higher-end items, such as iPads and even cars, as collateral.
Kathy Pierce, co-owner of Monster Pawn in Bloomington, Ill., is definitely seeing a higher-end demographic.
"People in business suits have been coming in for the past three years," she says. "They're underemployed, and they need safety-net loans to get through the week or month."
If you're ashamed to be seen walking into one, there are online pawnshops, such as Pawngo and PawnUp, where you receive price quotes via email, send your collateral by snail mail, and get your loan direct deposited to your bank account.
Finding the Right Shop
"You shouldn't be afraid of pawnshops, but to be safe, opt for one that's well-lit and clean," Pierce says. To find a reputable store in your area, check the National Pawnbrokers Association's database, PawnFyNdR.com.
Some pawnshops specialize in certain items. If you have an antique, look for a pawnshop with experience buying and selling antique items.
Or you can conduct the transaction online. Pawngo lets you pawn luxury items, from $250 to $100,000. Send a description and photo of your diamond ring, and Pawngo will make an offer. Ship it free of charge. If you agree on a final price, Pawngo deposits cash into your bank account. If not, Pawngo ships it back to you.
Loan terms vary by state. Pawnshops generally charge between 20% and 25%, says Emmett Murphy, spokesman for the National Pawnbrokers Association. California and New York permit a maximum interest rate of 4% per month, or 48% annually, while other states allow up to 10% per month, meaning annual interest rates of 120%. Loan periods also vary by state but are usually between one and four months.
On Pawngo, the interest rate ranges from 4% to 8%, depending on the loan's size. CEO Todd Hills says the average loan is $2,000, which would cost $120 per month, and the average loan term is four to five months.
Say you pawn your Android phone and get $100 for it. The interest rate is set at 20%, and your loan period is two months. You owe the pawnbroker $140 at the end of the loan period. You have three choices: You can pay the $140 and get your phone back; you can pay the $40 interest, which renews your loan, and you get another two months to pay the full $140 or renew the loan again; or you can default, not pay anything at all, and your phone is pawnshop property and put up for sale.
Interest rates are hefty compared to standard bank loans, but there's no detailed application, credit check or questions about your net worth. All you need is valid photo identification and a legally owned item of value. "There are no fees or penalties charged for late payments," Murphy says. "You're getting a secured loan because your pawned item is the security."
What's in Demand?
Jewelry is still king due to high gold and silver prices. "Customers often use the same item to borrow against for multiple occasions, so jewelry is an easy one to use," Murphy says.
High-end electronics and digital cameras are desirable, but computers aren't because they phase out quickly. As for brand names, Apple is best because its products retain their value.
Some items are seasonable or plentiful and fetch lower prices. "The construction crash means I have plenty of power tools, and I don't need Weber grills in the winter," Pierce says.
Pawngo specializes in high-end luxury items from gold and diamonds to Louis Vuitton bags and Apple-labeled anything. "We prefer small items that can be easily shipped overnight," says Hills.
Can You Negotiate?
You probably can negotiate the price of a top-end flat-screen TV or cutting-edge electronics, but just because you think your vintage vinyl collection is worth at least $100 doesn't mean a pawnbroker will.
"I know I can sell that DVD player for $25, so I'll loan $15 for it. Pawnbrokers also research the prices offered on eBay and Amazon, so we know what the rest of the country is willing to pay for that item," Pierce says.
The loan amount can be used as leverage in negotiations, she says. You may have some leeway with a $1,000 loan, "but don't bother negotiating on a $20 loan," Pierce says.
If you want to assert the worth of a valuable antique or piece of jewelry, bring a professional appraisal. Bringing items in their original packaging is always helpful and shows things in their best light, Hills says.
If you're buying at a pawnshop, you'll most likely get goods at a discount. Pawnbrokers rarely offer things at full price due to age and wear and tear. Still, do your research and know the value of an item in its current condition. Try to find out how long it's been in the store. The longer it's been sitting there, the more willing the broker will be to negotiate. Offering to pay cash may also reduce the price.
Overall, pawning is a money-losing proposition. But if the bank won't lend and you think you can repay a short-term loan in two months, a pawnshop might be your short-term answer to money woes.
Just don't do it on a regular basis. "If there's no light at the end of tunnel in six months, it's not a loan option for you. Just sell the asset, take the cash and move on," says Hills.