In Southern California, where cars often surpass jewels as symbols of wealth, you can now hock your wheels.
A number of used-car dealers are obtaining pawnbroker`s licenses to break into the new business of making collateral loans on cars.
”It`s a new wrinkle” in the collateral loan business, said Denis Hooker, a San Jose pawnbroker and president of the 260-member California Collateral Loan and Secondhand Dealers Association.
Used-car dealers are joining the pawnbrokers` association to learn how to get into the pawnbrokerage business, Hooker said.
Most traditional pawn shops won`t lend money on cars because of the size of the loan that typically would be involved, storage costs and possible conflicts with state regulations, he said.
Since mid-year, however, about 15 used-car dealers have applied for pawnbroker`s licenses, said Chris Okubo, a property analyst with the California Department of Justice. At least five applications have been approved.
Both car sales and the collateral loan business are highly regulated, and a car dealership needs a pawnbroker`s license before it can lend money on used cars, said Don Bugenhagen, manager of Car World, one of the firms that has a pawnbroker`s license. ”We just thought there was a need for this, and we need to make money.”
Not just any car will do in an auto-pawn transaction, Bugenhagen said. The minimum amount that Car World will now lend is about $2,500 on a car valued at $5,000.
”The rule of thumb is half of the low Blue Book value” of the car, Bugenhagen said.
A collateral loan from Car World costs $5 per $1,000 lent for a 10-day minimum, Bugenhagen said. This translates to an interest charge of 5 percent over those 10 days, with higher rates if the car is held for a longer period. The cost of pawning a car is relatively high because lenders want to encourage the car`s owner to pay back the loans and redeem the vehicle. ”We really don`t want to buy the car,” Bugenhagen said.
