I guess you can technically and correctly argue it is a loan secured by collateral .
That is how loans work at pawn shops.
Although, a lot of the people who do business with them could not afford to buy the items back even if they wanted to. So, yes, it is a for profit business that takes advantage of the situation.
I really don't see it as being much different from other loan companies or banks pushing loans that they know a person cannot pay back. I know of one bank that loaned a 26 year old (yes he is an adult) $45,000 on a vehicle when he was only making $8.50 an hour. Wonder who won out on that one? They knew they would repo it within 3 months when the loan was made, but they already had his other vehicle which was paid for, as a down payment.
This is where your ignorance of how things work comes into play. Unlike banks, pawn shops do not run credit checks on people making loans. Loans are made based on the collateral brought in, not on a person's ability or willingness to pick up the pawned item. So the pawnbroker hasn't a clue as to whether the person can get their stuff back or not and does not care one way or the other. Either the person does have the intent and ability and the broker makes a profit on the loan or the doesn't and the pawnbroker is forced to resell the merchandise to recoup the lost loan.
The way the system works is that a person brings in an item to pawn. The pawnbroker will loan X$ on the item. That amount of money is essentially an amount based on what the pawnbroker thinks the item can be sold for while allowing the broker to make a profit. In our stores 20 years ago, that that figure was essentially 1/3 on common items, 1/2 on certain types of items that were better movers, and up to 3/4 on some higher dollar items such as better firearms. Now 1/3 doesn't sound like much compared to ALL THAT profit being made, only all that profit includes all expenses (rent, utilities, wages, income tax, insurance, losses due to theft, breakage, etc., losses due to merchandise being confiscated). All of a sudden, one comes to realize that the amount loaned on an item is not the true cost of the item to the pawnbroker. It costs MUCH more than what is loaned.
As far as being predatory in nature or a necessary option - that was left open for others to decide or respond to.
This is an amazingly naive statement. Pawnshops do not hunt down people and force them into pawning their belongings. People search out pawnshops for that purpose. Pawnshops no more make people do business with them than hospitals make injured people do business with them or taxi drivers make pedestrians ride with them.
Unlike banks, pawnshops also do not report defaulted loans to credit organizations. The person getting the loan is under NO OBLIGATION pay off the loan.
If people want to take the time to sell an item in order to get more money than pawning it at a pawn shop, they are certainly entitled to do so. Of course, then THEY are at the mercy of their potential clients, waiting to see if somebody will answer their newspaper ad for their car stereo, wedding ring, or rifle, then dealing with the potential customers who come and look at their item for sale and spending the time haggling over a price...or they can go to a pawn shop and pawn the item without all the hassles noted, or sell it to the broker (but most pawn it). In fact, you would be hard pressed to find too many shops that have more than 20% of their loans that are not redeemed.
Since you do, in fact, seem to understand that pawn shops are for-profit businesses and not charities, why would you suggest they are doing something wrong by not paying full market value on an item submitted for a loan? You never addressed this aspect.
Of course, if you are willing to start a charity organization to help out financially distressed people, I wish you the best of luck. As with so many others, it will be non-viable and collapse. You can't both loan out the amount of money that people NEED and loan out the amount of money people can PAY BACK when said people are financially ruined. If you loan them the amount they can pay back, then it isn't enough to meet the amount they need and if you loan them what they need, they can't pay it back. Funny how that works. However, if you come up with a plan that makes it happen, you let us know, okay? You can start by bailing out the lending institutions right now.
This is why pawnshops on on what they perceive the resale value of the item is to them, not relative to the amount a person can or is willing to pay back. It is about the collateral, which is held by the pawnshop, not about the person.
in new S&W revolvers, I'm likely to look in pawn shops more often.
