Wednesday, July 11, 2007

Are pawn shops really that bad?

MSN clearly doesn't like pawn shops. I say, "What's the big deal?"

Pawnshops really are just loan companies that take small items as collateral. It is a competitive industry, so annual interest these days is usually around 22%.

People who put their stuff up for collateral at a pawn shop probably don't have great credit, so 22% is likely better than the rate on their credit card. Are there pawn shops that charge more? Sure, but as they say it's a "competitive industry" so you can just go to another pawn shop that charges less.

these days, planners see more people using pawnshops who don't appear to be traditional customers. One of them is Monica Martinez. A computer programmer, the Raleigh resident had always stayed away from "seedy" stores but has become a regular customer at Capital Cash, where she's selling off a stash of jewelry to pay a hefty tax bill. "It's either this or leave the country," she says.

I'm glad to know that Monica thinks leaving the country to avoid paying taxes is a viable solution, but anyway, is it so bad that she puts up her stuff as collateral for a loan? Every time you finance a car, your car is collateral, and if you have bad credit, your auto loan rate can easily approach 20%. What's the difference?

Flat wages and mounting debt are problems that drive even socialites in Beverly Hills, Calif., to pawn their Pradas.

Forgive me if I don't feel too sorry for someone pawning a Prada bag. Flat wages and mounting debts don't happen overnight. If you have a flat wage and a lot of debt, you need to be changing your lifestyle and spending less than you make, not buying Prada bags with your credit card. If you really are in such a bad situation, SELL your purse. I bet you get a lot more for it from eBay than the Pawnorama.

I remember a couple years ago my local news station did a piece on pawn shops and gas prices. A guy drove up in a newish Jaguar and said he was pawning his very expensive Rolex just to pay for gas. I guess it didn't occur to him that he had a gas guzzling luxury sedan.

So what about the other side of the coin? A pawn shop is like an air conditioned garage sale. People sold their stuff for cash and now the store is selling it to me for a little profit. Sounds like an honest transaction to me. Consumer needed money, sold stuff to pawn shop, I go in and buy it. Is it so wrong?

No comments: