It is fair to say that pawnbrokers don’t exactly have the best image in the UK.
Tacky looking stores with windows filled to the brim with ghastly gold jewellery that looks like it has come from a Christmas cracker is the picture many people imagine when they think of pawnbrokers.
Now, there is some truth to this – but only some.
These downmarket shops still exist up and down Britain’s high streets and since the economic downturn of 2008, their numbers have actually increased.
However, the industry has evolved over the last few years thanks in no small part to the internet and the fact that bank lending has plummeted.
It is therefore very important to distinguish fact from fiction and explain how pawnbroker loans have grown to become a serious alternative to traditional forms of finance.
Fiction – Pawnbrokers are only for the poor and unemployed
Fact – There is a new breed of pawnbroker that caters to affluent people
It is not just low earners who have been hit by during the economic crisis. Many middle-class families with large mortgages and crippling school fees to pay have also felt the strain and it is these middle-class people that the new breed of pawnbroker caters for.
Rather than accepting cheap jewellery and games consoles, high-end asset lenders provide loans secured against art collections, fine wine collections, diamonds, jewellery, prestige cars and other valuable assets.
Many people find themselves in a position where they are asset-rich but cash-poor and have discovered that pawnbroker loans are a good way for them to raise the money they need without having to sell their prize assets.
Fiction – Pawnbroker loans are prohibitively expensive
Fact – If you use them as intended, they are more than affordable
People take one look at the APR and run a mile, however, those with even a modicum of common sense will realise that the APR – while important – is slightly misleading.
Yes, if you take a pawnbroker loan out over a year then you will pay a hefty amount of interest.
However, they are not designed to be taken out over a 12-month period. They are short-term loans designed to be taken out over six months or less, so if you work out the interest on a monthly basis, you will find that they can make a lot of sense in many circumstances.
Fiction – Pawn shops are a place for criminals to unload stolen goods
Fact – This is not true
This may have been true at one time but today there are various checks in place to stop this from happening, with the National Pawnbrokers Association recently launching The Gold Standard code of conduct for pawnbrokers to adhere to.
Fiction – High-end pawnbrokers undervalue people’s assets
Fact – There is little benefit to pawnbrokers by undervaluing your assets
If pawnbrokers undervalued your assets, they would be cutting off their nose to spite their face.
The loans they provide accrue interest and they would simply not make as much money if they undervalued your assets.
In addition, credibility is important to the most reputable firms and it would do their reputation no good whatsoever if they were talked about as being shady and underhand with their clients.
The pawnbroking industry is not what it once was and it is important that you do not let preconceived ideas dissuade you from what could be a very useful avenue for credit in times of economic hardship.