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How pawnshops make money Seedly

How Do Pawnshops Like MoneyMax and ValueMax Make Money?

profileSudhan P

Did you know that the word “pawn” comes from the Latin word “pignus”, which means to pledge?

Source: Giphy

Pawnbroking was brought to our shores in the 19th century by the early Chinese immigrants, with the industry being largely dominated by the Hakkas.

The earliest recorded history of the trade in Singapore was way back in 1872 when Lan Qiu Shan and a few partners opened a pawnshop called Sheng He Dang.

During those times, pawnbrokers were seen as the “poor man’s bankers”.

Ever since then, the industry has now grown to over 230 registered pawnshops, according to the Ministry of Law (MinLaw).

Nowadays, pawnshops are patronised by white-collar workers and businessmen as well.

And they are an essential part of the lending economy, other than the banks (such as personal loans and credit cards) and licensed moneylenders.

In 2015, local pawnshops granted a total loan value of S$5.51 billion, which is no small amount!

Source: SpongeBob SquarePants | Giphy

How Do Pawnshops Work?

Pawnshops lend people money in temporary exchange for valuable items such as luxury wristwatches and pens, jewellery, gold, silver, diamonds, and signature bags.

Anyone who is over 18 years old with a valid Singapore identity card, passport, or foreign documents can pawn their valuables for cash in Singapore.

So, let’s say Desperate Andy needs cash.

Banks won’t lend to him as he has a bad credit score.

He doesn’t want to borrow from a registered moneylender as they usually charge a high interest rate of around 4% a month.

The easier bet for Desperate Andy is to go to a pawnshop.

There, he decides to pawn his jewellery for immediate cash.

At the pawnshop, the appraiser values the jewellery by examining, authenticating, weighing, and estimating the pawn value.

Desperate Andy can expect to receive 60% to 80% of the market value of his item as a loan. That’s the usual range that pawners will get for temporarily exchanging their valuables.

In some cases, though, the loan amount can go up to 90% to 100% of the item’s value.

Source: Giphy

For providing the collateral-backed loan, the pawnshop will charge an interest.

Usually, pawnshops charge between 1% and 1.5% for the first month, and 1.5% for the subsequent months. It used to be higher at 2% to 3% in the 1950s and 1960s.

Desperate Andy would typically be given six months to pay his loan amount back.

The details of the interest rate and the loan amount will be shown on the pawn ticket (example below).

Source: Singapore Pawnbrokers’ Association

Each time Desperate Andy makes a partial payment, the six-month timeframe is reset.

If he is unable to pay the loan back, he will lose the gold jewellery and the pawnshop will auction it off to recover the loan amount.

Desperate Andy can redeem his gold jewellery with the pawn ticket when interest and principal are paid in full.

Which Are the More Famous Pawnshops In Singapore?

In Singapore, the major pawnshop chains are Maxi-Cash, MoneyMax, and ValueMax.

A quick count of the registered pawnshops list provided by MinLaw shows that the three pawnbroking chains control around 51% of the number of licenses issued here.

And all three chains are listed on the Singapore stock market.

CompanyShare PriceMarket Capitalisation2019 Total Revenue 2019 Net Profit
Maxi-Cash Financial Service Corporation Limited
(SGX: 5UF)
S$0.137S$141.8 million S$218.5 million S$14.8 million
MoneyMax Financial Service Limited (SGX: 5WJ)S$0.184S$65.1 million S$182.2 million S$8.5 million
ValueMax Group Limited (SGX: T6I)S$0.30S$174.6 million S$235.9 million S$25.5 million

On top of pawnbroking services, some of them also offer retailing and trading of jewellery and gold as well.

Of the three listed companies, Maxi-Cash was the only firm that increased its revenue for the six months ended 30 June 2020 (the latest announced financial period).

Maxi-Cash’s sales rose by 12% year-on-year to S$102.8 million largely due to higher revenue from its pawnbroking business and the trading of jewellery and branded merchandise business.

However, that was offset slightly by the lower revenue from its retail of jewellery and branded merchandise and from its secured lending business.

Should You Take Loans from Pawnshops?

One of the main considerations when it comes to taking loans is the interest rate that borrowers need to pay.

While there are advantages to taking a loan from a pawnshop (no need for credit history and it’s fairly a quick process), the interest rate charged is high if you look at it on a per annum basis.

Assuming you are charged 1.5% per month for a loan from the pawnshop, it translates to around 18% per year.

Source: Giphy

In comparison, personal loans from banks are cheaper as they charge lower interest rates with some as low as 6.4% per annum in effective interest rate.

Also, bank loans are unsecured ones, so there’s no need to put up collateral, unlike a loan from pawnshops.

Unsecured loans are supported by the borrower’s creditworthiness.

So if you have a good credit score and want to enjoy the lower interest rate, a personal bank loan would be better.

If you are considering getting a personal loan for yourself, you can check out the best personal loans with real user reviews!

How to Clear Your Debts Quickly and Effectively?

Once you have taken a loan, you should pay your monthly repayments consistently to ensure the interest doesn’t pile up.

Also, you shouldn’t over-leverage yourself at any point in time as that could have repercussions.

To know whether you are conservatively leveraged, you can use a couple of personal finance ratios to help, such as the debt to asset ratio.

If you end up being in lots of debt and are looking for help to clear them, there are two methods to employ: the debt-snowball method and the debt avalanche method.

Each method has its pros and cons, but any method that helps an individual clears his/her debt effectively is worth a look.

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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