Have you ever wondered how Pawnshops works or how they make money? Pawnbrokers Melbourne make money by providing short-term loans, reselling unredeemed pawned items and offering other services like money transfers. The principal income generator is the interest on the loans and the profits they get from selling items. Most Pawnbrokers generate a net profit of 15 to 25 percent.
Pawn loans
The first source of revenue for most Pawnbrokers is the income from interest earned from the pawn loans.
How it works: A Pawnbroker loans an individual a certain amount of money based on the value of the item they bring in as collateral. The item could be anything from a television to gold jewellery. The amount that is loaned could also be affected by the shop’s inventory. If you bring a television as collateral to a shop that already has too many televisions, the Pawnbroker has to consider how long the TV will stay in the shop before it is bought by someone.
Pawnbrokers Melbourne charge interest rates that are substantially higher than the rates charged by banks. This is because pawn loans carry more risks of customers defaulting on their loans. Most people who take out loans from pawnshops cannot afford to take out loans from banks. Pawnshops charge interest rates of 5 to 25 percent interest.
The loan period can last for 30 days. To avoid forfeiting the items put up as collateral, the customer has to pay the loan back in full and the interest. Some Pawnbrokers Melbourne will allow you to pay the interest to extend the loan to the next month if it proves impossible to pay back the loan in full on time.
Pawnbrokers will typically lend between 60 to 70 percent of the resale value of the pledged item. The Pawnbroker needs to factor the costs of storage, cleaning, advertising and the overhead costs.
Resales
The second income source for Pawnshops is the sale of merchandise. This includes things that Pawnbrokers have bought from other people and pawn loan collateral items belonging to customers who defaulted on their loans.
Pawnbrokers offer more money on items that are sold outright to them than for items offered as collateral. The difference can be 10-15%
This is because these items are available for resale immediately and they can easily calculate the projected profit they will get for reselling the items. Items acquired through default can offer a low or high profit, it depends on the items themselves and how long they were held prior to the default. If a loan was held over a long period, that pawnbroker could already have made the profit collected from the interest payments on the loan. The amount of time that the item spends in a pawnshop also means it has more time to deteriorate in its value. Pawnbrokers can be useful in a case of an emergency as they offer fast liquid cash, unlike a bank which could take several months to process.
