Word: loans
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...business for pawnshops, but so too does the high price of gold. The precious metal's price is up to more than $1,200 an ounce, vs. about $860 in January 2009. Suddenly, dusting off that old flame's gold necklace is an easy way to score a quick loan. "With the price of gold moving higher, it allows individuals to get a bigger loan, and that has been a stimulus to driving increased pawn lending," says Joshua Elving, a senior analyst at Feltl...
Pawnshop companies make money by giving short-term loans to customers who offer jewelry, electronics, tools, musical instruments and other merchandise as collateral or by purchasing merchandise outright from customers at a steep discount. Loan terms are typically one to three months in length, with customers expected to cough up monthly storage and loan-servicing fees of 10% to 20% a month. If a customer fails to make a monthly payment, the pawnshop, following a grace period, can sell the item. (See the five big questions about retirement...
Although pawn loans are far pricier than credit-card and bank loans, they also are faster, don't require complicated paperwork and don't affect one's personal credit. Since the loan is backed by merchandise, if the loan isn't repaid, the person simply loses the pawned item - "whereas with other types of loans, I could lose my house or car," says Henry Coffey, a senior analyst at Sterne Agee & Leach...
...restrictions made it difficult for lenders to turn a profit, causing many to shut down their payday-loan programs in those states. "Payday lenders are lending unsecured money to individuals with no credit history and no credit score," says Elving. "So it's truly a situation where they have to price for risk...
Coffey estimates that payday loans account for 35% of Cash America's revenue, 22% of EZCorp's total revenue and only 10% to 12% of First Cash's revenue. First Cash recently sold all 22 of its payday outlets in California, Washington and Oregon to lower its exposure to payday-loan regulatory issues - a move Elving says should boost the company's valuation...