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Your Money > Household Bills Articles > Pawn stars for...
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By Sarah Modlock
I had a chat with my mother recently about pawn. She told me that years ago, it was perfectly normal for many families to pawn items for a few days or weeks when money was tight. One of the most popular 'valuables' was a man's 'Sunday best' suit, which would be taken in on a Monday and redeemed the following Friday when the paypacket arrived. At the start of the twentieth century there were nearly as many pawnbrokers as public houses in Britain, lending money on anything from bed linen and to cutlery. Now the brass balls which have symbolised the pawnbroker's premises are back in the high street and for the first time have a presence on the internet, bringing the concept to whole new generation. Although there are around 1,000 shops operating across the UK, they don't all have the traditional window of gold chains and rings. Many now have shop fronts similar to an insurance office, a far cry from dark, backstreet trade which has been around for 3,000 years. From high street to internet The modern day pawnbroker used to get much of his business from those without bank accounts or who could not get any kind of loan elsewhere. As more and more people find it hard to get credit, pawnbrokers' customers are becoming more 'mainstream' than before. They may previously have been unaware of the pawn industry or may feel uncomfortable entering a shop. Knowing this, one broker, Borro.com has set up the first UK internet pawn service. "People are struggling - and the options for middle Britain are being diminished," says Paul Aitken from Borro.com. "The cost of living has gone up and access to mainstream credit is now very limited. As a result, we are attracting the middle class." Borro's business model is standard for the pawnbroking industry (see below), except that it is done online and therefore lessens the potential embarrassment for the client. It offers short-term loans of £100 to £1,000,000 and will lend up to 40% of the pawned item's second-hand value. More usually, loans are in the hundreds rather than thousands of pounds although the site has recently been getting loan requests for £250,000. After filing out an online form, customers get a decision about their loan and if successful are sent a pre-paid envelope and a courier in an unmarked vehicle collects their belongings, which are stored in a vault. Loans of up to 40% of the item's value are are available and the process is completed within 24 to 48 hours. Customers then have six months to repay the loan and interest of between 3 to 6% is charged each month, depending on the size of the loan. Generally, the interest charged on its loans equates to 84% when spread out over an entire year. If the customer defaults on a loan, Borro will sell the item to recover the principal and interest and charge a £15 administration fee. This has yet to happen though, as every item pawned since the site launch in August has been redeemed by its owner. Over time, the site expects this to reduce to around the standard pawnbroker level of around 85%. Who is pawning what? "More than two thirds of the people who use our site are female; women have a tendency to look after the household bills and are more likely to have easily pawned items such as jewellery," explains Aitken. "We are now seeing people borrowing to pay for Christmas and we expect to see people afterwards as they have overspent." In general, pawnbrokers will lend on items which are easy to value and store, that won't depreciate and which have an established second-hand market. This is why jewellery and watches have always been so popular. It is also something that the owner can do without for a time. Borro has already given loans against a number of unusual items though, including antiques, sporting memorabilia, art, musical instruments, signed Harry Potter books and even a Ferrari. Although the site does not usually loan against electrical goods or cars it did take make an exception for the Ferrari owner, a small business owner who needed £10,000 to pay his staff and said "The whole thing was very efficient, professional and effortless." Other recent clients include a 48-year-old manager of a seasonal business who secured a loan against a private number plate and Rolex watch to plug a £9,000 gap until she sells her stock; a 38 year old gentleman who has served in the British army who was refused an overdraft from his bank. He secured a £300 loan against his medals. There is also the 42-year-old lady who was offered a £1000 loan against a diamond ring to 'plug the gap' between paydays for her son's school trip. How does it compare to other types of borrowing? That depends. Chances are that if you are using any sort of pawnbroking service then you have already been turned down for conventional loans (although if not, you should shop around first). For starters there is no comparison to borrowing from loan sharks, where interest of hundreds if not thousands per cent will stay with you for life. There is also a stark contrast to 'payday loans' which typically charge as much as 25% a month or more in interest. A £600 loan over three months: Bank Unplanned Overdraft Fees (average for three major banks) * Interest: 5-7% (total for 3 months) = £36 * Monthly Fees: £15 per month (for 3 months) = £45 * Daily Fees: £20 per letter (max 10 per month) = £200, TOTAL = £281 Pay Day Loan (25%+ per month, compounded interest) = £450 Borro.com (max 6% per month, simple interest) = £108 Interest charged by Borro is not compounded daily or monthly and there are no redemption penalties or credit checks. Before you pawn.... 1. Although clearly much cheaper than some forms of borrowing, it's important to bear in mind that pawning is still relatively expensive. If you have the chance to take a traditional loan or authorised overdraft then this will be a much cheaper option. Even most 'low credit' cards have lower APRs than the pawnbroker can offer. So don't assume you have no options - find out. 2. Think carefully about the item you are pawning. If the worst happens and you cannot repay the loan then you will lose the item. 3. If you are struggling with debt then don't be afraid to ask for help. Speak to: the Consumer Credit Counselling Service - a registered charity which assists people in financial difficulty by providing free, independent, impartial and realistic advice. Call 0800 138 1111 or www.cccs.co.uk. Open 8am to 8pm Monday to Friday. National Debtline - for people with debt problems in England, Wales and Scotland provides a service which is free, confidential and independent. Call 0808 808 4000 or www.nationaldebtline.co.uk. Open 9am to 9pm Monday to Friday and 9.30am to 1pm Saturday. Or Payplan - which provides a free debt management service and are an independent company whose aim is to help people set up and keep to a manageable repayment plan. Their services are paid for by the credit industry. Call 0800 917 7823 or www.payplan.com. Open 8am to 9pm, Monday to Friday and 9am to 3pm on Saturdays. Sounds good - but how does pawning work? Essentially, if you have something you want to pawn, you approach the licenced broker who will provide an on-the-spot valuation and agree a sum that you can borrow, leaving the item with the broker as security for the loan. An agreement will be made in writing with the goods being held for a specified period of time - usually a minimum of six months. You can then redeem your property by payment of the original loan plus interest. If you do not repay the loan during this time and it was over £75 you will receive notice that the property is due to be sold giving you a further statutory period of 14 days in which to redeem (the customer will normally however have the option at the end of the contract to renew the loan by the payment of interest only and the rewriting of a fresh agreement). If you do not respond to the notice then the broker can sell the goods, obtaining a true market value which ensures a fair price is obtained for you. If there is any money left over when your loan has been repaid, this will be passed to you. Common pawn myths include the idea that the broker can 'gain title' to the goods when a loan is not repaid. This is only the case for loans below £75. It's also in their interests to ensure the loan is repaid rather than sell your goods to get their money back - setting out to be lenders, not retailers. Pawn broking is regulated under the 1974 Consumer Credit Act and there are strict measures in place to ensure goods can't be sold off before customers have had a chance to repay the loan. Useful links: |
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