The pawn industry has gone upscale, with ‘luxury asset lenders’ offering thousands, or even millions, of dollars against your jewelry, art, cars and boats. But know what to watch out for before you use one of these services
The industry’s gone upscale: It’s called luxury asset lending, and it’s a byproduct of the recession, the resulting tighter credit market and the Internet. Yes, the Internet, as technology makes it possible for people to pawn items without stepping foot into an actual store.
The upscale model is brand new and at the same time not new, says Steve Krupnik, owner of Cloud Ten Inc., a pawn industry consultancy in South Bend, Indiana. “Governments have been borrowing from pawnbrokers for centuries,” Krupnik says. “The difference now is that upscale lenders are leveraging technology to identify customers and do the transaction.”
Among the new breed of luxury lenders: London-based Borro; iPawn; Pawngo and Pawnbahn, which also has a bricks-and-mortar store in San Antonio. Troy Perkins, founder of Pawnbahn, says many of his clients are small-business owners who need cash — bridge loans, actually — for business purposes. One client has pawned an engagement ring — a 4.7-carat center diamond flanked by two 2-carat diamonds — three times for $15,000 each time to cover payroll. “It’s the biggest ring I’ve ever seen,” Perkins says.
Paul Aitken, founder and CEO of Borro, calls his business “luxury asset lending” and likens it to private banking. Only about a third of Borro’s clients “need” money; it’s usually more of a “want” situation, Aitken says. They want, for example, to buy stock with cash for a discounted rate or snap up a competitor that just put up a for-sale sign — but they don’t have cash on hand for the deal. “The common theme is a luxury asset and irregular cash flow, so they struggle with normal credit,” Aitken says.
Borro’s loans range from $5,000 to several million dollars, Aitken says, and the most common forms of collateral are high-end jewelry, good watches and fine art. The loan amount, he points out, represents only a fraction of the item’s value, which further underscores that this is, indeed, an upscale endeavor.
“To get a loan from us, you have to have an asset that’s worth $7,000 or $8,000, which means you paid more than $10,000 for it,” Aitken says. “I don’t know about you, but my friends don’t walk around with that kind of stuff hanging off them.”
Another thing that separates luxury collateral lending from garden-variety pawning: The redemption rate, or the rate at which owners claim their possessions. At Borro, it’s 90 percent, compared with around 80 percent for brick-and-mortar pawnshops. Items stay with luxury lenders longer, too. The average loan length at Borro is six months, versus 45 to 90 days at more traditional pawnbrokers.
Luxury pawning is simple: Go to the site (or the storefront), type in a detailed description of your luxury item or present the item for perusal, wait for an offer, accept the offer, ship your item to the lender, collect your loan, use the money, and then when your cash flow permits, pay back the loan and the interest and collect your luxury asset.
Luxury pawning isn’t without drawbacks, though. First, lenders lend only a percentage of the item’s market value; for Borro, that’s anywhere from 30 percent to 60 percent. The lender can and will sell your item if you don’t repay the loan and any early repayments are applied to interest, not the principal. And yes, there’s still a stigma attached to pawning of any kind.
Here, Aitken, Krupnik and Perkins offer tips on how to make the most of luxury asset lending.
1. Think short term. Don’t think of this as saying goodbye to Grandma’s Harry Winston bracelet forever. “We will only lend to you if you can afford to pay us back,” Aitken says. “People can’t get into a debt spiral.” Reconsider lending your item if you think you’ll need longer than six months to repay the loan.
2. Consider interest rates before handing over your luxury asset. Interest rates vary and are regulated by municipality, says Perkins of Pawnbahn. In San Antonio, the rate is 1 percent a month or 12 percent annually. Borro’s range is from 2.49 percent to 3.99 percent per month; it’s simple interest, not compounded, and borrowers needn’t be current month to month, Aitken says. Still, luxury lending isn’t cheap. At Borro’s highest rate, a $5,000 item loaned for six months would cost $6,197 to redeem.
The common theme is a luxury asset and irregular cash flow, so they struggle with normal credit.
|— Paul Aitken|
Founder and CEO, Borro
3. Look for hidden fees. Krupnik has seen loan origination fees, shipping fees and other costs tucked into the fine print. A reputable luxury loaner should offer free shipping and shouldn’t charge a loan fee.
4. Ask where your item will be stored. “In my desk drawer” is an unacceptable answer. For instance, Perkins says in Texas, a highly regulated state, pawnshops are required to store jewelry in a safe rated TL-30 or higher: That means with no interruption, a professional thief would need 30 minutes to open the safe, Perkins says. Pawnbrokers and luxury lenders also must carry insurance.
5. Think seasonally. When Krupnik was a pawnbroker, “every spring, my warehouses filled with snowmobiles and every fall, with boats and motorcycles,” he says. His point: If you’re not using a seasonal item and want or need an influx of cash, why not pawn it?
6. Don’t try to pull a fast one. Borro requires proof of purchase for a fine-art piece and also checks pieces against The Art Loss Register, a database of stolen art objects. Krupnik says that even a few simple questions — “Is that white gold or platinum? Where and when did you buy this?” — can ferret out a thief.
7. Feel free to re-pawn items. At Pawnbahn, about 60 percent of customers are regulars. Some, like the business owner with the whopper engagement ring, bring in the same item again and again. Used frequently, “that piece of jewelry becomes pretty much an instant credit card, and that’s the key to the pawn business,” Krupnik says.
8. Ask about customer service. Reputable pawnbrokers “want you to be happy with the service,” Krupnik says. Service-minded lenders will do minor repairs, such as cleaning a watchband or tightening up a prong.
9. Don’t worry about credit. Unlike a private bank, a luxury lender won’t check your credit score. Nor will defaulting on your loan adversely affect your credit score. “All that happens is you no longer own the item,” Krupnik says.
10. Ignore the stigma. Even with collateral such as imported sports cars and diamond watches, luxury lending hasn’t yet removed the tarnish from the word “pawn.” Krupnik’s advice? Ignore it. “Consider it and go into it with your eyes open,” he says. “It really is one of the most civilized forms of borrowing.”