Pawn shop owners across the US say they’ve seen an increase in demand for loans in the past month or so, a sign of just how punishing higher gas prices are for some Americans.
“We’re making a lot more loans,” said Tim Cassidy, the fourth generation in his family to run Cassidy’s Jewelry & Loan in Stockton, California. “They have to have that gas, they have to get to work.”
Lower-income households spend a larger portion of their wages on fuel than wealthier families, and so are among the first to feel the hit when pump prices go up. The surge — from an average of $2.984 per gallon before the Iran war to $4.166 as of April 8 — has left some without enough cash to fill up their cars or pay for electricity or groceries.
On Friday, the Bureau of Labor Statistics said US inflation increased in March by the most in nearly four years, driven largely by the increase in gas prices.
The middle-income and beyond are feeling the pinch, too, from what pawnbrokers are seeing. “Expensive watches are coming in a little bit more frequently,” said Abigail Mielcarek, co-founder of Abby’s Pawn and Coin in Santa Rosa, California. “Some of the people who have more money are also feeling what’s going on.”
Pawn shops can offer timely signals about consumer strain that may not be clear in official statistics, which often mask the experiences of different socioeconomic groups and are typically released with a lag.
The businesses issue short-term loans in exchange for collateral — a gold necklace, a guitar, a tool kit — left at the store. Interest rates vary by state, with monthly averages ranging from 3% to 25%. That can equate to an annual percentage rate, or APR, of 300%.
Cassidy’s family-run shop has been around since about the time Ford launched its Model T, and the 82-year-old Cassidy has seen again and again that costlier gas is bad for US consumers and good for his industry. “A lot of people live very close to the edge,” he said.
The business is “countercyclical,” said Brian C. McNamara, an analyst at Canaccord Genuity, who covers the two publicly traded pawn operators, Ezcorp Inc. and FirstCash Holdings Inc. “If pawn shops are doing well, it probably means that some part of the economy is not.”
In his quarterly survey of 47 of the companies’ thousands of shops, McNamara said he found around one-quarter were busier in the first quarter compared to the same period a year ago, while only 12% were less so. This week, he raised his FirstCash target to $242 from $240 and Ezcorp’s to $40 from $34. Shares in both are trading at five-year highs, buoyed by robust revenue growth and what he said was management’s “solid execution.” The average loan made by FirstCash last year was $312; at Ezcorp, it was $209.
Many borrow money this way because they can’t get bank loans for just a few hundred dollars and they often don’t have accounts with lenders or wouldn’t pass a credit check. For them, “everything is so tight,” said Stacy Vanegas Vazquez, head of marketing at Sunbelt Pawn, which has 19 stores across Texas.
“We come at the end of their bills — everyone is going to pay their light bills before they pay their pawn shop.”
Some of her customers are starting to ask for more time to repay loans, while some longtime clients have begun to default. Other pawnbrokers said people are starting to sell more valuables to shops outright, probably concerned that they wouldn’t be able to pay off loans. And there’s been an uptick in demand for the merchandise; if a borrower defaults, the collateral becomes the pawnbrokers’ property.
“More people are buying secondhand,” Mielcarek said.
So far, most of the pawnshop owners interviewed said they haven’t yet seen significant increases in defaults, which may be because tax refunds have been coming in. But Janelle Morehart-Leevey, co-owner of Ponders Pawnbrokers in Lakewood, Washington, said she’s noticed clients walking back in with the same items they hocked just a few weeks earlier to secure a new loan.
“‘I just need a little bit until I get paid,’ we’re hearing that more and more often,” she said.
One regular at Ponders, Mel Mason, recently put up a firearm in exchange for $200, the money going to cover a $150 veterinarian bill for one of his dogs.
Mason, 57, a National Guard program analyst and full-time student, said he prefers a short-term loan from a pawnshop because it’s fast — and at a bank, “loan officers want to know everything about you, including your blood type.”
McNamara, the analyst, said that before the Iran war, he and others were expecting tax refunds this year would really help lower-income Americans make ends meet. “That’s not been the case,” he said. “You have gas prices that are just slapping people across the face.”
Written by: Jeannette Neumann @Bloomberg
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