According to the National Pawnbrokers Association there are now 800 pawnbrokers in the UK alone, with new outlets growing at a rate of 10% a year.
You might recognise some of them – such as Cash Generators, The Money Shop and Cash Converters – from stores you see on the high street.
Pawnbroking has a long and rich history that dates back thousands of years. The practice of providing loans in exchange for collateral can be traced to ancient civilizations, where individuals would pledge personal belongings or valuable items to secure loans.
The origins of pawnbroking can be found in ancient China, where pawnshops, known as “Lombard” or “Lombard Street,” emerged during the 5th century BC. These early pawnshops were established to offer financial assistance to individuals in need, primarily farmers and merchants. The practice spread to other regions, including ancient Greece and Rome, where pawnshops played a crucial role in providing short-term credit to the population.
During the Middle Ages, pawnbroking continued to thrive and was an integral part of the economy in Europe. Pawnbrokers served as a source of credit for individuals who were unable to obtain loans from traditional financial institutions. In many cases, pawnshops were the only accessible option for borrowing money.
In the 15th century, the Lombards, a group of Italian moneylenders, played a significant role in the development and regulation of pawnbroking. They established pawnshops in major European cities, including London, Paris, and Amsterdam. The term “Lombard” became synonymous with pawnbrokers, and the Lombard Street in London’s financial district earned its name due to the concentration of pawnshops located there.
Pawnbroking also played a pivotal role during times of economic crises and wars. It provided individuals with a means to access funds quickly in times of need. Pawnshops became a vital source of financial stability for people during challenging periods.
Over time, pawnbroking evolved and adapted to changing social and economic landscapes. The establishment of formal regulations and laws governing pawnshops helped protect both borrowers and pawnbrokers. Pawnbrokers were required to adhere to specific guidelines regarding interest rates, loan durations, and the storage and retrieval of pledged items.
In modern times, pawnbroking continues to be a recognized and regulated industry in many countries around the world. Advances in technology have brought changes to the pawnbroking process, with computerized systems and online platforms facilitating transactions and enhancing convenience for customers.
Today, pawnbrokers offer a range of services beyond traditional pawn loans, including the sale of secondhand goods, jewelry, and luxury items. They serve as a resource for individuals seeking quick access to cash or those looking to purchase pre-owned items at more affordable prices.
The history of pawnbroking demonstrates its enduring significance as a financial service that has provided individuals with access to credit and liquidity throughout the ages. From its ancient origins to its present-day operations, pawnbroking remains a vital component of the financial landscape, offering a valuable option for those in need of short-term financial assistance.
Pawnbroking basically works like this:
You go to a pawn broker for a loan but will have to leave something valuable, the ‘pawn’, as security. You’ll have to sign a credit agreement and the pawnbroker will also give you a pawn receipt which you keep to prove you own the item. Because the pawn broker has something of yours as security it doesn’t need to do any credit checks.
You pay interest on the loan which is much more than borrowing money from a bank or building society. There is also the risk of losing the property if the loan cannot be repaid. Once this is done your valuables are returned.
If the loan is not repaid after a pre-determined period of time and there is no re-negotiation with the pawn broker your item can be sold to recover the cash.
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.
Traditionally pawn brokers have targeted people with a poor credit rating or without a bank account, who find it difficult or impossible to borrow money elsewhere. However in times of recession it’s becoming more popular with more people as banks and other lenders get more picky about who they lend to.
‘Pros’ of pawnbroking
Supporters of pawning argue that the interest rate isn’t that relevant as it’s supposed to be for people who can pay the money back pretty soon, usually between one and six months. However, the interest rates are so high, that even after three months, you could end up paying a sizeable sum in interest.
Speed is another factor as there are no long forms to fill in and money will be available on the same day. There are also no credit checks to do and if you’re late repaying the loan it won’t affect your credit score although you could lose the item you left as security.
Disadvantages of pawnbroking
The most negative thing about pawnbroking is the very high interest rate. If you take a long time to pay the loan back, the interest paid will make it a very expensive way to borrow. One online pawnbroker charges an APR of 84% for some loans! Others charge much more.
It would be better to obtain a personal loan or credit card instead. Even if you borrow for just three months from a pawnbroker, you’d end up paying 19% interest if the monthly rate was 6%.
If a weak credit rating means you can’t get a mass-market card or loan, there are ‘low credit score’ credit cards where you’ll pay a 30% + interest rate. That’s still very high, but better than the pawn broker.
Another important point to consider is that if you can’t manage to repay the loan you stand to lose the item you left as security so think carefully about how much the items mean to you before handing them over.
Also you won’t be able to borrow up to the full value of the item you leave. So if your item is worth £100, you might only be able to borrow £50, or less.
There’s almost certainly a better answer than the pawnbroker!