Pawnbroking has become increasingly popular as a means of raising temporary finance in recent years. There are a number of explanations for this but it must also be remembered that pawnbroking is nothing new. Pawnbrokers’ shops have been a feature of many British high streets for centuries. However, they had started to fall out of fashion towards the end of the twentieth century as other forms of credit – notably the rise in credit cards – started to make them obsolete.
Nevertheless, pawnbroking has seen something of a resurgence in recent times. It is not just in the UK, either, because the same phenomenon can be detected in both continental Europe and North America, as well. What is underpinning consumer demand for pawnbrokers’ services these days?
The Cost of Credit
Since the global financial crisis struck, the Bank of England’s interest rates have been at a historic low. Indeed, since March 2009, the rate has been just a fraction of a percent. You might be forgiven for thinking that, therefore, more people than ever before would be using traditional sources of credit for their purchases, such as high street lenders, hire purchase arrangements, and credit cards.
Unfortunately, this low official lending rate doesn’t always transfer into the real lending rates that ordinary consumers see in the market. Although many mortgage lenders shift their rates according to the Bank of England’s headline rate, consumer credit operators often don’t. This means that many people – especially those with a chequered history of borrowing – cannot obtain cheap credit from traditional sources.
In turn, this has led to more and more people wanting to use their possessions as collateral. Anything from electronic equipment to jewellery and even musical instruments can be pawned. In turn, this offers the lender greater confidence and means they are less exposed to risk. Consequently, pawnbrokers will often be able to lend on more favourable terms than other lenders who don’t take goods as collateral. To put it simply, pawnbroking is popular today because it is so often a cheaper option than other sources of credit on the high street.
Dealing in Cash
Given that turning to a pawnbroker is often the most cost-effective way of borrowing for ordinary people, it is also important to note that many people prefer dealing with cash payments. If they are already overdrawn, for example, then borrowing money that is paid into their bank account will be of little immediate use.
As such, pawnbrokers, who tend to deal with cash lending more than other credit operators, are often the favoured choice of people who are currently in debt elsewhere. Obtaining cash by pawning a possession might mean being able to get through a temporary cash-flow problem and it is not unheard of for small business owners to use a pawnbroker to see them through until a client payment is made – just as a household might until a salary clears.
The Avoidance of Lengthy Paperwork
Obtaining credit today will usually mean filling in a lengthy form. More often than not, lenders want would-be borrowers to complete web forms so they can make their offers. This means credit scores can be negatively affected, particularly if credit is not offered or the deal is turned down by the borrower. For some, just the idea of completing multiple forms puts them off. With a pawnbroker, however, a deal is usually struck verbally.
Crucially, this will be done face to face as the item being pawned is assessed for its value. Yes, there will be a contract to sign but this shouldn’t impact the credit score of the person borrowing, especially if they successfully repay their loan on the initial terms offered. Pawnbroking is a great way for people to be able to borrow who aren’t computer literate or don’t trust putting their personal financial details online, too.
Using Available Resources
According to one experienced pawnbroking firm based in Essex, Bonds of Brentwood, the low cost and greater convenience of borrowing from a pawnbroker are not the main reasons many people turn to them nowadays. They say that many of their customers prefer to use a traditional pawnbroker because it means being able to use their available resources to help them borrow more effectively.
Put simply, if someone has an asset, such as a diamond ring, a computer, a luxury watch, or some gold coins, why shouldn’t they make that asset work for them by allowing them to borrow at a lower rate than they might get elsewhere? Using personal possessions as collateral is often better than simply allowing them to do nothing more than gather dust, after all. Given that many people just need a short-term loan and will pay their creditor back, they’ll retain ownership of the items they’ve pawned in nearly all cases.