Is Pawn Broking a Bad Time Industry?

Due to its portrayal in the movies and TV, some have a negative opinion of the pawn industry overall. However, the idea that pawn brokering is a “bad times” industry is simply untrue. While it may be the case that customers who are currently experiencing a personal hardship may choose to utilize the services of a pawn shop, the pawn industry itself does not thrive during times of widespread economic hardship. In fact, the pawn industry suffers the same as most any business will during times of economic strife, recessions, depressions or whatever you might call it. Pawn shops can and do survive bad economies if they make necessary adjustments to the loans they make as well as the merchandise they choose to buy, but they see higher profits in good economies.

Are Pawn Shops a Bad Time Industry?

The credit industry sees gains based on the assumption that the borrowers will be able to fulfill the agreement of the loan terms. However, in poor economic times, unemployment rises and it becomes less likely that borrowers will be able to repay their loans, regardless of what type of loan they have. In the case of a pawn loan, this would mean the borrower would forfeit the merchandise they put up as collateral for the loan.

Many are disillusioned at the impact this has on pawn shops; since the borrower provides the shop with physical collateral that they forfeit if the loan terms are not met, the shop still makes money, right?

Not the case.

During hard economic times, the value of most consumer merchandise decreases. Meaning, if the pawn shop is able to resell the forfeited merchandise, they will sell it at a lower value than what they could if the economy was thriving. In poor economies, it is more difficult to sell merchandise because consumers have far less discretionary income, which means that the forfeited merchandise is likely to sit on the shelves of the shop for a while, rendering the shop little to no profit.

In short, the pawn industry is not a “bad times” industry that earns profits from society’s desperation. Pawn shops see ups and downs in their business just like most every other type of business; they are most successful when borrowers can repay their loans or sell forfeited merchandise quickly for a profit.