Pawnshop Pandemic: Burden or Benefit?


Skye Parker


August 24, 2021

Well, that of course depends on where you look and who you ask. While Covid-19 has impacted small businesses of all kinds, pawnshops are unique in that they offer loans as well as items for sale on the shop floor. So let’s go over some of the basic effects that COVID-19 has had on pawnshops in particular.

What’s More Important, Loans, or Sales?

Surprisingly, (or rather unsurprisingly depending on how familiar you are with pawnbrokers and how a pawnshop works) pawn loans are the primary source of income a pawnshop will attain. When someone turns an item over as collateral for the laown the pawnshop is willing to offer an amount based solely on the value of the item. In the event that an individual fails to pay back the loan at the end of the loan term (typically 30-90 days) the pawnshop then takes possession of the item which they can then sell for the price of the loan. Pawn loans are more lucrative than simply reselling the item for a few reasons. Firstly the interest rates applied to the loan are additional to the amount offered up for the collateral item. These can be anywhere from 5% up to 25%. Secondly, when selling an item, a pawnbroker must consider the potential repair, cleaning or storage of an item that isn't in high demand. These things will reduce the ultimate cash return when selling the item.

The second (and less lucrative) source of income for a pawnshop is the resale of items brought in by individuals who have not fulfilled their pawn loans and as a result haven’t been returned their items. These items become the property of the pawnshop and are set for sale inside the pawnshop as merchandise. As each item sits it can be tricky to estimate the profit margin any given item will bring in. Generally if the item has collected a series of payments prior to the item being forfeited to the pawnbroker, they will have made their money back after resale of the item. This can still vary though, depending on the item's condition and popularity, the storage of the item over time may cost more than what it's worth. Additionally the item may simply deteriorate in value the more time that goes by; think video game consoles or the good ol’ ipod nano, once the next generation comes out it’s value drops significantly.

The Boom in Sales and Decline in Loans

With the current boom in business that 2020 has offered so many businesses, it's easy to assume that pawnshops must be crushing it. This however is not the case, in fact, it's quite the opposite and here's the simple reason why; loans have decreased by 40% for pawnshops during the pandemic. Loans are one of the primary sources of income for these businesses. This alone was enough to put many pawnshops out of business in the last year, closing their doors for good. One explanation for the decline in pawn loans is heavily related to the stimulus packages that have been steadily signed into law as the pandemic progressed. This caused many people to have a boost in income, Unemployment Insurance Relief benefits, rent relief and utility payment and assistance through various government programs as well as small businesses having the option to take advantage of the Paycheck Protection Program (PPP Loan). Everyone in the nation seemingly already had the money they needed; thankfully for Americans, but unfortunately for the pawnbroker, they then didn’t have to resort to pawn loans. It was also largely impacted by the forced quarantine period, where there were a slew of skipped vacations, no Friday night at the bar. This meant people weren’t taking out new loans, but they were also using this period to pay off existing loans and collect their collateral items, reducing the merchandise available in pawnshops.

However, there was a saving grace that kept some pawnshops afloat. During the Covid-19 pandemic pawnshops were one of the few places deemed essential. This meant that once banks and payday lenders had temporarily closed or significantly reduced their open hours, there was an influx of new customers who had never pawned before. The Department of Economic Opportunity reported that unemployment increased 4.7% in Boynton Beach; the city it hit the worst. The unemployment rate left many individuals with no other option than to pawn their belongings to pay their bills and keep their families fed. 

Once business shifted from loans, most pawnbrokers took sales to the next level. The pandemic aided in selling off hot ticket items like laptops, iPads, ps4s, musical instruments, work out equipment, bikes, and especially guns. Many things people couldn't find in stores were sold very quickly when a lot of these items, once pawned, would sit on a shelf. Covid-19 made a huge impact on what pawnshops were able to sell and how they functioned as a whole. The strange decline and uprising of the different areas of business as we knew it were changed in a way we never thought possible. 

As for the future, only time will tell. There's absolutely no way to predict this coming holiday season as we see the world begin its slow return to life as normal since the vaccine has made its first appearances. Perhaps we’ll see history made yet again, or maybe things will truly go back to normal.


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