Pawnshops are gritty places. People go to them to borrow against valuable possessions such as watches and rings. Now, times are changing. Some pawnshops are providing banking services.
Big banks are discouraging lower-income customers by making it hard for them to get loans. They are closing branches in some neighborhoods. They want customers who will add more revenue to their books.
Enter the pawnshops. They are sprucing themselves up to attract customers. They now offer services such as cashing checks, giving text alerts about balances and improved credit cards. They offer Western Union money transfers, and bill payments.
These services can come at considerable cost to low-income borrowers. First, pawnshops are still pawnshops. Their main business is lending money to customers based on the value of the object they bring in. The customer has a fixed number of days to reclaim the object. Customers pay back the amount they borrowed, plus interest. If they do not, the pawnshop can sell the item. Interest rates range from 2.5 percent to a high of 25 percent.
Still, customers are made to feel comfortable in pawnshops. Some of the shops are setting up separate offices and lobbies for their “banking” services.
Because of the services they are offering, the number of pawnshops is growing. The economy has made banking very difficult for lower-income customers. Pawnshops are meeting the demand.
Advocates are telling consumers to use the new services with care. Watch those interest rates and look out for hidden costs and fees. Borrower be wary!