As credit tightens, pawnshop clientele grows

Tighter credit regulations in a trying economy are forcing more New Hampshire consumers to find alternatives to banks and other traditional lenders when they need to borrow.

Among those less traditional lending institutions is the pawnshop, which in recent months has been serving a broader clientele, including many people who may never have thought until recently that they would be seeking assistance from a pawnbroker.

The pawnbroking industry has been supplying capital to people since before the Middle Ages. And for just as long it’s been trying to shake off a shabby image. (“That’s the way the money goes … Pop goes the weasel!” is an 18th-century jig that some folklorists say refers to poor working-class people “popping,” or pawning, their wares at a shop in London’s West End.)

Shabby is not how you would describe Michael DellaPaolera’s Nashua Loan & Jewelry. His shop is clean and tidy, and occupies 1,800 square feet of retail space on Broad Street in Nashua.

DellaPaolera, who has been in the business for nearly 20 years, says a new landscape is evolving — one that no longer includes the stereotype of a cramped store in a seedy neighborhood.

A decade ago, he explained, the typical customer was someone strapped for cash. That hasn’t changed. But the arc of customers has. Pawnshops are no longer the domain for those living on the edge. They’re a resource for the upper echelon, who for the first time find themselves battling bad credit and/or lenders no longer wanting anything to do with them.

“We have business owners that are coming in,” said DellaPaolera. “There are contractors that need money for payroll. We have car dealers that come in that need more money to get vehicles on their lot.”

Pawnbrokers’ loans are short term, usually 30 days. Like banks, they charge interest, although at a much higher rate, from 10 to 15 percent for the term of the loan.

Fred Kaen, a finance professor at the University of New Hampshire, explained the similar borrowing and lending processes at banks and pawnshops.

“It’s just a matter of dealing with very large loans backed by real estate,” said Kaen, “to ones that are backed by — what is it these days — oboes, or whatever the person is pawning.”

An industry makeover

Pawnshops don’t check credit ratings, but they do take an oboe – or other types of collateral, such as watches, flat-screen TVs, power tools or computers.

DellaPaolera said he’s even taken reptiles. One customer brought in a prey-squeezing python.

“They brought it in a crate, of course,” said DellaPaolera. “They just needed a loan for a day or two. So I helped them out, gave them a loan on the snake so they could get gas, and they went and did their thing.”

DellaPaolera said the snake owner returned to pay off his loan and pick up his collateral. He said most people – about 70 percent – want their items back.

A small minority comes in to the store after rummaging through basements and drawers, wanting to swap goods for cash. DellaPaolera said he’s seen people pulling up with trailers on the backs of the cars: “I have people selling me their valuables from their house so they can get out of the state and work somewhere else.”

Dave Adelman, president of the National Pawnbrokers Association and owner of a shop in Atlanta, said that pawning is a way of life for many people. He recalled a customer he used to have who routinely handed over his glass eye.

“A glass eye to some people may seem creepy or willy,” said Adelman. “But to this guy, it was gold. He used it on a monthly basis to get cash. It’s all he had. And he came back for it every month. Eventually we made a ring for him when he got a new one.”

Adelman acknowledged that in addition to the regular customers who plan expenditures month by month, he’s seeing more first-timers taking a second look at pawn-brokered loans.

Adelman also emphasized that pawnshops are shattering the myth that they deal in stolen goods.

By law, pawnbrokers need to make copies of legal IDs, such as drivers’ licenses, and may also require customer fingerprints before completing a transaction. At the end of each business day, pawn shop owners also need to send records to the local police departments.

According to the National Pawnbrokers Association, less than half of 1 percent of the collateral used to obtain members’ loans is deemed stolen. “They myth we take stolen merchandise is not true at all,” said Adelman.

In fact, the industry, he said, is experiencing an image makeover. Owners have brightened up their shops, merging the trades of banking and retail. And the number of shops has doubled over the last 20 years – from 7,000 to 14,000 around the country.

“Since the economic downturn, we’ve seen more people using the pawnshop for short-term collaterized loans because they can’t get credit anywhere else,” said Adelman. “The pawnshop is the only place they have to go to be able to survive. We’re the last resort for them.”

As people continue to lose their jobs and their savings, more entrepreneurs are hanging out shingles as legal, short-term lenders. At Nashua Loan & Jewelry, business is booming — owner DellaPaolera said sales are up 60 percent from a few years ago.

But as in any industry, these mom-and-pop shops are finding themselves competing against a wave of national chains, in including EZCORP, which has 670 shops nationwide and in Mexico, and First Cash Financial, which has operates about 500 stores in the United States and Mexico.

They’re all bidding for the same type of customer: those with bad credit and no place to go.