Struggling families turn to Pawnbrokers

A fundamental lack of job opportunities and rising personal debts may be bad news for the majority of the UK population, but it has led to a resurgence in business for pawnbrokers. As families struggle to make ends-meet, profits are reaching record levels for pawnbrokers and may even be set to grow further.

In the last 6 months of 2008, pawnbrokers Albemarle and Bond’s profits have increased from £24.9 million to £26.5 million. This represents an increase in pre-tax profits of 19%. Cash Converters also exceeded market expectations with an 120% increase in half-yearly profits of £466,000. Pawnbrokers are one of the few high street shops that aren't concerned about insolvency.

H&T Group also posted a 36.5% increase in pre-tax profits. This growth was helped by a growing customer base, the rising price of gold and an expansion in the number of shops. Chief Executive, John Nichols, intends to expand the number of shops from 106 to 250 over the next 4-5 years. This will make them the largest chain of pawnbrokers by some distance.

Consumers that have had loan or credit card applications rejected regularly turn to pawnbroker loans to help them with short term money problems. A customer gives a pawnbroker an item of value, such as a gold necklace or electrical item, as collateral for the loan. All loans are for less than six months, because the rate of interest charged is high. It is argued that the high APR reflects the likelihood of loan default.

The typical pawnbroker customer tends to have difficulty gaining access to mainstream financial services because of a poor credit rating. Popular reasons for loans include paying the rent and covering essential household bills. Borrowing money from a pawnbroker helps a consumer to bridge the gap until their next pay day, bonus or new job starts.

The Consumer Credit Act 1974 regulates all pawnbroker lending activity. It requires that the pawnbrokers provide the customer with a detailed receipt. This must specify the final date of redemption, the level of credit secured and the rate of interest charged by the lender. If the receipt is lost or accidentally thrown away, inform the pawnbroker immediately in case someone else finds it and tries to redeem the goods.

The amount of interest charged varies considerably between pawnbrokers, but the rate will be higher than that offered by banks. There are no best-buy loans available at 7.9% per annum. Most pawnbrokers charge 3-5% APR per month on their loans. This is considerably cheaper than unsecured Payday loans where the figure is nearer 20% per month.

According to the National Pawnbrokers Association, approximately 88% of pledged goods are redeemed by their owners. Given the rate of interest and the fact that pawnbrokers are dealing with bad credit customers, redemption levels are good. However, it is widely believed that pawnbroker activity actually increases localised crime. Pawnbrokers are vastly more likely to appear in poorer, city areas.

Unfortunately, many people who use high interest loans from pawnbrokers and payday loans will find it is very easy to get into a cycle of dependency. While these loans should only be used in an emergency, an increasing amount of individuals that can't get access to personal loans may find themselves now turning to loans from pawnbrokers, as banks continue to be cautious with lending.

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