Online Pawn Shop Tries to Polish Up an Old Lending Idea


Janet Barbour wanted to take her 11-year-old grandson Brian to Disney World, but money had been tight since her husband's death. So the 63-year-old Barbour arranged a loan through an Internet pawn broker called Pawngo. She put up seven diamond and emerald rings as collateral for $700 at 6% a month interest, and off the two went from their Charlotte, N.C., home to the Magic Kingdom in Orlando, Fla. "It didn't cover it all, but it did cover tickets and part of the gas," she told DailyFinance.

Two-year-old Pawngo bills itself as a more upscale pawnshop for the digital age, and Barbour as the new breed of pawn customer -- not desperate, just temporarily cash-strapped. The average loan from a storefront pawn shop is $150, while the Pawngo average is $2,000, according to the company.

"Our services are meant for people that have assets that don't necessarily want to sell their assets," explained Pawngo CEO and co-founder Todd Hills. "It's a difficult time."

Barbour checked out the local brick-and-mortar pawn shops and said she was turned off by the 20%-plus interest. Pawngo's rate runs between 3% and 6% a month. If you borrow $1,000 at 6%, $60 a month is automatically debited from your bank account until you repay the loan. Otherwise, the electronic pawn outlet operates pretty much the same as a brick-and-mortar store, with stay-at-home convenience. (Those low numbers may seem fairly painless, but it's worth noting: Even without the compounding interest trap, that's actually an annual rate of 72% -- much higher than the most expensive credit card.)

You click on and answer questions about your collateral. You then agree to temporary terms and Fedex the item or items to Pawngo (on their dime through a digital shipping label). Pawngo offers 50% of the appraised value as a loan and deposits the money in your account as soon as you give the final OK. You have three months to pay the loan back.

Less Sleaze, More Ease

The company is trying to dispel the pawn shop stereotype of a sketchy storefront dealing in fenced goods. Heck, let's throw in a cigar-chomping sleaze in a moth-eaten sweater behind the counter to complete the picture. Pawngo is supposed to be the pawn shop your grandma would visit -- virtually anyway.

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Hills pointed out that unlike a default on a mortgage or car loan, his company -- or any other pawn shop -- will not kick you out of your house, take your car, bash your credit rating or take you to court. Pawngo merely keeps your modest assets and sells them to pay back the loan. It will gladly do business with you again, should an emergency come up like a plumbing catastrophe or car breakdown, Hills said.

"It's really the oldest form of borrowing," he said. "You're borrowing money against your past and you're not leveraging against your future. We've developed a much friendlier user experience to get things done."

A Google search for "online pawn shop" produced no other obvious competitors on a national scale. Pawngo recently underwent a so-called "rebranding" and relaunch in June to reflect its motto: "The Pawn Shop Reimagined!" Since its inception, the company has known nothing but recession and recession hangover followed by the threat of a relapse. Pawn shops generally thrive in that kind of economic climate. The stock price for pawn shop operator Ezcorp (EZPW) doubled to $38 a share in the last year, AP reported. The number of Florida's pawn shops doubled in the past year -- the state now houses 1,280 of the nation's 10,000 pawn shops, the National Pawnbrokers Association told the Miami Herald. And reality shows like the History Channel's Pawn Stars have raised awareness of pawning as well.

Pawngo, backed in part by Groupon founders Eric Lefkofsky and Brad Keywell, already has loaned out more than $2.5 million, Hills estimates. Its loan cap per person is $1 million. One of the biggest borrowers so far was a trucking company owner whose fleet sputtered into the shop, Hills said. He forked over a Rolex, a Cartier and some diamonds for a $50,000 loan.

Barbour, the North Carolina grandmother, might not have a business to save, but she's ready to pawn again for a vacation after she gets her rings back. "If I want to take a cruise," she said, "I have no reservations whatsoever."

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