My husband's cousin opened a pawnshop in the city. The capital was so big that we didn't think they would earn. Besides, the cousin had to attend gemology courses to fully understand the nature of the business. In one year's time, the business was flourishing and the profitability is evident in the cars that they bought. Simple. The pawnshop charges a rate of 5% interest for the money you borrowed, that's monthly, aside from the service charge. And to think that if you cannot pay then the pawnshop forfeits your collateral. It's really a great business.
I think in any business venture, the ones who are willing to take the big risks also take in the big gain. I myself want so much to take the risk of getting a big loan from the bank and starting a business, however, people around me don't seem to have the same confidence and courage as me when it comes to this issue. My husband and even my parents think it's just plain risky without thinking about the potential gains. If only I could decide and act by myself, I could have had my own business a long time ago.
I guess you get big results from big returns. It's definitely a risky part of the market to be playing with but if you get good traction in this kind of business, you can do very well. Pawnbroking isn't an area that I would have thought about, to be honest.
With the way the economy is at the moment, more and more people are turning to businesses such as this just to make ends meet. While there's nothing wrong with that, I do think that a lot of these companies are making the most of people's financial problems, and While they are there to help, there's a lot that are just in the business to make a quick dollar at peoples expenses.
@pwarbi, you said it accurately - making a quick dollar at the people's expense. This micro financing was here since time immemorial although now it is getting to be the domain of the Indians who are riding in motorcycles to roam around in collecting the daily installments. There was a time when the government put up its own micro lending called Sariling Sikap where small people can borrow money with no collateral. It was good while it lasted. But in the end, statistics say that 90% did not pay back their loans from the government.
I've done quite a bit of business in Puerto Rico and I can tell you the pawn industry is big business down there. I am not sure about other markets, but that is one example. I can see how the business model might work very well in some areas.
It's an interesting concent. But yeah it depends on the country... over here no one would go to pawn shops. It just wouldn't work. But I can see it being really profitable in certain countries/areas. The thing is, you also have to be good at judging the value of the items so you will be able to hand out the appropriate amount of money while still making sure that you will be the one who wins if the guy doesn't come back for the collateral.
Studying gemology is very important for the pawnshop business because that would give one the knowledge in assessing the value of a pawned item. And not only jewelry is accepted as pawn, there are pawnshops that accept cellphones and appliances. The best thing about pawnshop business is the security you get because there is always the collateral. So the pawnshop would normally grant only a loan that is 20% to 25% of the pawned item. And when the pawner abandons his loan, the pawnshop gets more advantage.
I'd be very tempted to open up a couple of pawn shops in a couple of casino areas nearby if I had the time.
Over here, the casinos are rife with the so called loan sharks. You can spot them easily - old women with handbags who are roaming and sometimes doing the slot machines. You can borrow cash from them up to a million (in pesos) but you have to pawn something. The interest is 10% for 1 week. Those lenders get rich very quick but their scheme had caused so many suicides already. There was a young man who pawned his car and lost all the proceeds of the loan. Confused with his fate, the young man jumped from a building.