Saturday, 20 June 2015

Pawn Broking Business - passive income stream

I have always wondered how pawnbrokers work. Yesterday I passed by a pawnbrokers and curiosity finally took the better of me and I went in just a wee bit to take a look at a notice. They are offering 1% interest. hmm... as a leverager, 1% is good deal! I went on to read the entire notice. "1% for the 1st month and 1.5% per month subsequently. Wow.... Thats 17.5% per annum for money lending with collateral! Thats day light robbery I say!

Apparently this is thriving in many countries, where people live salary to mouth. A slight delay would mean cashflow disaster. One such country to highlight recently was Korea where electronics products from students were being accepted as collateral for some quick cash. Electronics would not have any value to a pawnshop and normally they would not want such products however, it became a thriving business in Korea where students could get fast cash by pawning their phones, guitars and other electronics for a few days to weeks to solve their cashflow problem, until their parents give them their allowances.

As I know, the way to mitigate the depreciation of electronics is to grant shorter terms and lower the cash value granted. Say 50% of the products current value and only 3 months to fully redeem the product. 

As I learn about this 'daylight robbery' business, it intrigues me. This could be a long term passive income source.

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