If pawning the family silver signals a desperate need for cash, then what does handing over your own teeth say about your financial situation?
A set of gold false teeth was one of the more unlikely items offered to pawnbroker Nathan Finch.
“It wasn’t the most pleasant of transactions but we did the loan,” he says.
Jewellery is most common pledge as security for a loan, but during 30 years in the pawnbroking trade he says he has witnessed some more creative propositions from customers.
“Everything from designer handbags to Mont Blanc pens, and a lot of signed memorabilia; we even had people offer a racehorse and a fishing trawler,” says Mr Finch, managing director of Pickwick Pawnbrokers.
“You never know what is going to come through the door. It can be a very small diamond ring in someone’s hand or it can be a great statue under their arm.”
Through the thick, alarmed doors, in the cramped vault under his High Street pawnbroking shop, Mr Finch pulls out works of art, designer handbags, and even a Louis Vuitton dog collar.
His experience is not unique. Across the UK, various pawnbrokers are specialists in Rolex watches, luxury cars or antiques.
So why does anyone in possession of an Aston Martin or an expensive timepiece need to walk into a pawnbrokers’ shop to seek a loan?
“The typical reason that a customer might use a pawnbroker is almost exclusively cashflow. It is not that they don’t have assets, or that they don’t have wealth, it is just that they don’t have that money at that particular time.
“It could be school fees, it could be extra spending money for a holiday, it could be a crisis loan, like getting your car back on the road. It is a cycle of the need being driven by a crisis or some luxury spending.”
Research suggests that day-to-day spending, and a need to pay utility bills are high on the list of customers’ need for quick cash.
“Pawnbrokers tend to get people through a short-term cashflow issue and then the item is redeemed. I am happy and they are happy,” says Mr Finch.
How does pawnbroking work?
- Customer “pledges” an item, such as a gold ring for a set period of time, usually six months
- Pawnbroker gives 50% to 60% of the item’s value as a cash loan
- Customer pays 7% to 8% interest every month
- An item can be redeemed during the loan period by paying back the original loan and any interest up to that point
- If the customer cannot repay the loan at the end of the deal the pawnbroker sells the item and returns any surplus to the customer
This happiness may, of course, be short-lived. Failing to pay back the loan, and the interest charged on top, means saying goodbye to the valuable possessions.
Even if the item is redeemed – and in most cases it is – then using a pawnbroker can be a relatively expensive way to borrow, says the Money Advice Service.
“You can usually only borrow a percentage of the value of the item you want to pawn. So if, for example, you have some jewellery worth £200 you might only be able to borrow £100.”
Interest is typically higher than a standard bank loan but normally less than a payday lender. But unlike those loans, anyone with a poor credit history can access pawnbroking services as long as they have an item to pledge.
The Money Advice Service suggests people who want to pawn should shop around for the best deal, and also:
- Choose a company that is a member of the National Pawnbrokers’ Association, which has a code of conduct for members
- Ensure the company is regulated by the FCA
- Understand the value of the item you are pawning
- Be aware that a complaint can be raised with the lender and, if unresolved, to the Financial Ombudsman Service
There were only 44 new cases dealt with by the Financial Ombudsman about pawnbroking in the last financial year – and only 30% were upheld in the complainants’ favour. In the three months from April, fewer than 30 cases were recorded, registered as a blank on the ombudsman’s latest data.
That suggests either a high level of satisfaction among customers or a lack of awareness of the ombudsman – or both.
It certainly compares favourably to the wider consumer credit market, which saw complaints rise by 89% in the year to April, following a 40% rise in the year before that.
Complaints have not mushroomed but nor has the industry. While the unsecured credit market – including overdrafts and credit cards – has grown rapidly in the last few years, prompting fears about a consumer debt bubble, the pawnbroking sector remains relatively niche.
Just 4% of the adult population use a pawnbroker, according to Ray Perry, chief executive of the National Pawnbrokers’ Association (NPA).
Customers are more likely to be women than men (it is a 60/40 split), aged 25 to 40-years-old and in a job.
Stricter regulation has thinned the number of pawnbrokers. All businesses with a licence to offer credit to consumers have had to be reauthorised by the regulator – the Financial Conduct Authority. The process was long and intense, and many pulled out of the industry as a result.
The NPA had more than 200 members beforehand, now it has 150. The combined loan book of their 1,200 retail stores is £700m, having peaked at about £850m, although the falling price of gold has played a part in this reduction.
Nathan Finch also points to challenges facing the industry from the new technology and convenience used by money-lending competitors.
“A lot of young people do not want to bring in an item. A lot of business and financing is done on apps nowadays.
“Pawnbrokers are developing technology to be able to try to keep up with that. The initial deposit of the item will always be physical, but the way in which we can transfer money and communicate with customers is modernising.
“I think we shall compete with lenders for another 3,000 years.”
He says “another” 3,000 years, because the history of pawnbroking stretches back three millennia.
The Chinese were pawning their goods back then for shipbuilding, the cost of war, and exploration.
Modern pawnbroking began in northern Italy in the middle ages, with the split of the Medici and their family crest between the bankers and the pawnbrokers, with the latter taking the three balls sign – a symbol that survives to this day.