Are you thinking about taking a collateral loan for your jewelry for the first time? Are you nervous? Don't be. Pawn shops and resale jewelry stores alike have lost their reputation for being seedy, low-class places where people pawn anything they can lay their hands on in order to get access to cash they can drink or gamble away.
Now, the typical customer is much more likely to be somewhere between the ages of 35 and 60, employed and earning $50,000 or more per year, and just having a temporary money crisis. However, there are some basic facts that you need to understand:
1. Where You Do Business Matters
Some places that offer collateral loans are more pawn shop than jewelry store -- and they have a drastically different business model than the places that consider themselves to be luxury lenders that will evaluate a few pieces of unique jewelry or a collection of designer jewelry in different ways.
There's nothing wrong with doing business with either kind of shop -- but it may affect how much you are able to borrow on the jewelry that you have. The average pawn shop will probably offer you about 1/4 of your jewelry's ultimate resale value in their shop. A luxury lender may offer you closer to about 1/2 your jewelry's resale value.
2. Be Prepared for Sticker Shock
If you noted above that loans are based on resale value, you may still be thinking that your jewelry is worth what you paid for it. That's seldom true.
Jewelry sold on the regular retail market has a huge markup. Part of the problem is that gold and silver prices change rapidly -- so the jeweler has to factor in a little bit of a buffer zone. The other problem is overhead -- you're paying extra for the shiny store atmosphere, the personalized service, the security camera, and how long an item might have to sit in inventory. The markup over wholesale could be as high as 110%.
When you either take a collateral loan on your jewelry or sell it to a resale shop, they are working with a lower overhead -- and lower retail price. Their customers expect to pay lower for the jewelry because it is used (even if it is in perfect condition), so the shop has to pay less for its inventory in the first place.
In addition, the place you sell to has to calculate out whether or not your jewelry -- should you default on the loan -- is going to be melted down for its metal value or resold because it is unique, collectible, a designer piece, or some other reason. If your jewelry is fairly basic, the odds are good you'll be offered a percentage of its metal value, not resale price. Both are likely to be lower than you realize because of the markup you paid when buying.
3. Develop a Relationship to Borrow More
If you periodically use the same jewelry store or pawn shop that offers collateral loans and the owners develop a sense that they can trust you to redeem your pieces rather than walk away from them, they'll likely offer you a higher loan. They make money on the interest of the loan, so that's to their advantage -- but having to melt your jewelry down or try to resell it usually isn't.
If you want better loans down the line, find a place that offers collateral loans that you're comfortable using and stay there -- you'll see the rewards over time.
For more information on how to take a collateral loan on your jewelry, talk to a local dealer.