Springfield residents who cheered the closing of a Main Street pawn shop last month will be sad to learn that pawn shops actually thrive in a economic downturn. I assumed the closing had to do with the economy or the Main Street construction.
What you can’t see in the picture below is that the pawn shop actually relocated to Arlington. It’s possible changing neighborhood demographics in Springfield are making the pawn business less lucrative. Or maybe not as lucrative as the crumbling outer-ring suburb of Arlington.
After looking into this more I’ve determined pawn shops in Springfield will thrive during this economic downtown and will serve a vital purpose. What many people fail to realize is pawn shops serve as financial institutions for many in the neighborhood who can’t get bank account or who don’t trust banks to lend them money. So I don’t see these businesses leaving anytime soon.
“We’re a community bank. There’s no question in my mind that we are important. We are a small community bank,” says Mark Lax, president and owner of Pawn 1 Inc., a Spokane-based chain of a dozen pawn stores. Lax says Pawn 1′s business is growing, and he plans to open six more stores in Idaho over the next three to five years. – Soft economy gives pawnshops bump
While they do provide a needed service, unfortunately Pawnshops prey on neighbors down on their luck with excessive interest rates and high fees. So here’s how a pawn shop works:
A person brings a something to a pawn shop, say a TV, and receives a load in exchange for cash and the promise to repay the money borrowed plus fees and interest. Example:
on a $100 loan, for example, there is a $16 loan origination fee, and $3 in interest accrues every 30 days, so at the end of 90 days, which is the minimum time a pawnshop must give a borrower to repay a loan, the total cost to the borrower for the loan would be $25. If the loan isn’t paid off, the item becomes the property of the pawn shop, which puts the item up for sale.
So you were able to borrow 100 dollars for $25 dollars, basically a 25% interest rate, without a credit check. Not a very good interest rate, but at just $25 it’s still a pretty cheap loan.
Opinions on pawn shop are pretty strong around the neighborhood so it was an interesting exercise to take a look at the interesting relationship between them, the current economy and the residents of Springfield. I’m happy there is one down, four to go. To me it’s a sign of progress to see a pawn shop pack up. Hopefully it won’t be replaced by a check cashing store…
