by Mark Johnston
With banks and credit card firms becoming more choosy about whom they lend to as the credit crunch intensifies, it seems pawnbrokers are filling the gap.
It is well documented that people on low incomes in the UK generally have fairly limited options when it comes to borrowing money.
Beccy Boden-Wilks, of national debtline, a help line for those in debt, stated that “the credit crunch has meant that people are looking at alternative forms of borrowing. If they can not get another credit card balance transfer they will start to look at other forms of borrowing, which could be payday loans or pawnbroking, both of which can be quite expensive”.
Data has shown that more and more cash strapped consumers have been resorting to visiting pawnbrokers having been shunned by mainstream banks.
Albemarle & bond pawnbrokers, chief executive Barry Stevenson has accused banks of ignoring a large proportion of their customers who have been hit by the current squeeze on household incomes.
As a result of this, short term loans, pawnbroking and gold buying businesses all have seen greater levels of demand.
Soaring gold prices have been a major factor in the growth of pawnbroking, as people realise that old wedding rings and unwanted jewellery are now valuable assets that can be sold or borrowed against.
However, many people are surprised to find that pawnbrokers still exist, let alone thrive, in 21st century Britain.
There are around 800 pawnbrokers currently trading in the UK and this number is growing at 10% a year.
Until recently pawnbroking in the UK was mainly a local service run by small neighbourhood firms, with only a few large national companies.
There are now 7 seven large companies which account for about 75% of all shops, with the remaining 25% being small independent firms.
Compared with other forms of credit on offer to people on modest incomes, such as payday loans and doorstep lending, pawnbroking can be a ready source of cash at a lower cost.
A pawnbroker provides cash loans secured by a pledged item, typically jewellery, because the loan is secured, pawnbrokers do not carry out any credit checks.
Pawnbrokers typically lend up to 50% of an items value and items can be redeemed at any time, but loan terms are usually for 6 months. Rates of interest vary little across the industry, with most pawnbrokers charging 7-8% a month.
Over the past 10 years or so, pawnbrokers have also diversified in to other financial services including cheque cashing and payday loans.
Recent figures have shown that more than 80% of customers using a pawnbroker come back to claim the items they have pawned.
Unlike most payday loan lenders pawnbroking is a regulated financial service.
It seems however, that pawn shops still carry a ‘Dickensian’ image of mother pawning father’s best suit for a paltry sum.
Therefore pawnbrokers are working hard to dispel the industry’s aura of backstreet financial shame and transform it in to a modern, slick financial service, it is clear that pawn shops still carry a stigma for many.
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