Pawnbrokers Thrive in Recession

One thing the financial crisis has taught us is that banks fail, and even the ones that are bailed out are plenty capable of losing people’s money. When this happens, pawn shops often step in to fill the need for short-term loans and cash for nearly anything with resale value.

There are three national pawn shops on the stock market in the U.S., and all of them have seen their share prices soar as the Great Recession and unemployment mean more people are seeking short-term cash.

In the past year, share prices have increased drastically for pawn shops: 33% for First Cash Financial Services (Stock Quote: FCFS), 110% for Cash America International (Stock Quote: CSH) and 81% for EZCORP (Stock Quote: EZPW), which benefited thanks to expansion into Mexico and Canada.

By its very nature, the pawn shop is a very local entity. Most pawn shops provide 30- to 90-day loans at around 20% interest using property as collateral. If the person does not return to claim the collateral they borrowed against, the store sells it to recoup the amount of the loan, plus whatever profit they can make on top of that.

Pawn shops’ fortunes are often linked to the price of gold and other precious metals, which are also experiencing record highs. Pretty much everyone has jewelry, and pawn shops are suckers for guaranteed returns. The price of an ounce of gold has increased 28% in the past year, to $1,135, so even an old ring has a guaranteed value based on how much gold is in it.

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