Tuesday, March 12, 2013

Did pawn shop loans really increase so much in 2012?

In 2011, pawn shops gave out about about $5 billion worth of loans; this number jumped 43% to $7 billion in 2012. Much has been said about this, for instance about how this was because of the casinos. However, gold prices have also been on the rise, can this account for the increase given that gold is typically the item of choice for pawning?

In the pie chart below, I've distilled down the 43% into three factors. First is the number of pledges made. This tells us the number of items pawned, and this category contributed over a third towards the 43% increase. Each pledge was also exchanged for a bigger loan in 2012, compared to 2011. In fact, the "loan per pledge category" contributed about half towards the 43% increase.

Lastly, gold prices actually rose only 6.2% in 2012, according to this website. As a result, only 16% towards the jump in pawn shop loans. It does seem that "real" pawning actually took place, even when we account for gold prices.

Even so, the proportion of loans redeemed increased between the two years, rising from 96% in 2011 to about 100% in 2012 (this includes interest, which is about 1.5% per month). It does seem like only a small minority do not redeem their loans; either the gamblers have won back their money or there weren't many gamblers to begin with.

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