Potential Profits from Pawn Shop Stocks

 

Last weekend, I saw an unusual sight. I pulled into the lot of a small mall in Northern Arizona. I was on a mission. When I got out of the car, I saw people sitting in a Ford Explorer next to me. They were taking boxes and a guitar out of their car. These items were then taken to the store.

It's so strange.

People carrying boxes out of stores are something I am used to, but not inside. The constant stream of people next to me was what really baffled me. I wasn't the only one who noticed those parked next to me. Three other people were doing the exact same thing.

Returns

It was obvious that they weren't returning unwanted or defective items. I was witnessing the local pawnshop in action. The pawn shop is just like a local bank. They offer cash loans to individuals and make a profit through the interest and fees they charge. They are a type of financial institution, similar to Citibank and Bank of America. Pawn shops earn their living by lending money to people.

You haven't thought of them that way before.

Pawn shops take the collateral idea to the next level. They retain the assets as collateral. This is similar to getting a mortgage for your home but you use tools, musical instrument, or jewelry instead.

Provide a valuable service.

Pawn Silver Florida are a popular option for people in short-term loans. This allows people to use their assets to get the capital they need. Pawning isn't their only business. There are many ways for pawn shops to make a profit. . . But more about that later.

This is not your father's pawnshop anymore.

Pawn shops had a bad reputation. These once-sinful shops are now a legitimate source of funding for many people. National companies own hundreds of shops and run the business. They ensure safe and clean environments and help to locate the stores in good areas. A high-powered image consultant can do amazing things.

This is not all.

Pawn shops don't just focus on selling pawning goods. They now offer many other services, including payday advances, short-term personal loans, and auto loan lending. This allows pawnshops to diversify their product lines and increase their revenue.

Recessions are good for pawn shops. It's difficult to get money and credit standards are becoming more restrictive. This is why pawn shops are able to do more business. More business equals more profit.

It's easy to see it that way. What do you do if you have no credit and can't pay your mortgage or buy groceries? The bank won't lend you money. You're almost out of options with credit card companies. Not even your family and friends are options. You might consider pawn shops to quickly raise the funds.

These companies are truly exciting because of their numbers.

Every year, pawn shops are used by hundreds of thousands. The average loan amount is $150, according to statistics I found. The fees are between 15% and 20% per luna. Profits are high, with more than 70% of these loans being repaid. Collateral is also sold at retail margins exceeding 30 to 40% when loans are not repaid. The industry's revenue growth is around 16%.

What does all this mean for you as an investor?

Profits, pure and simple. This industry has a lot of potential for profit and the growth rate in this sector is amazing.

There are also risks.

As with all investments, this business comes with its risks. An investor would normally identify the greatest risks as competition and collecting overdue debts. This is not the case. Government intervention is the biggest threat.

Payday loan interest rates are being limited by some state governments. Obama, the Democratic presidential nominee, has proposed a national limit on payday loan interest.