Pawnbroking 101

Pawns and payday loans address similar client needs but they are significantly different products.

Given the market overlap between pawn and payday it’s natural to compare the two. Both products qualify as ‘micro-finance’ and are typically viewed as belonging to the alternative financial sector. While the payday industry is roughly 30 years old, pawn traces back over 2000 years. The differences are much more substantial than age however.

• By nature of their simplicity pawn transactions are more protective of the consumer than other alternative finance products. For example:
• Payday and Instalment Loans create debt because there is an obligation to repay.
• This is not true for pawns: there no obligation to repay because there is no debt. The client has the option to recover the pledged item if they choose, but they can also opt to let the pawnbroker keep it to negate any repayment obligation.
• Payday loans have a short term (typically 2 weeks or less).
• Pawns provide longer terms (typically 4-12 weeks based on location) which gives clients time to stabilize financially.
• Payday is vulnerable to destructive practices like obtaining multiple payday advances on the same cheque. This creates a credit ‘doom spiral’.
• A client cannot pawn the same item at multiple locations so this can’t happen.
• Pawns do not result in credit judgments, wage garnishment, collection fees or similar penalties.
• Pawns do not borrow against future earnings, so the client’s financial stability is not under threat.
• A single signature is all it takes to cause dramatic, lasting financial impact with other alternative finance products. This ‘ease of access’ entices people to make unwise decisions.
• Pawn loans are pre-meditated. The client balances their need for funds with the temporary surrender of a personal asset. This is not reckless borrowing but a careful, calculated decision on the part of the client.

Each financial product has a niche and a purpose. While pawn and payday overlap in clientele and value they provide very different benefits to the client.