Page last updated at 19:35 GMT, Monday, 26 May 2008 20:35 UK

Pawn shops thrive as credit tightens

By Katie Hunt
Business reporter, BBC News

Dolores Lewis, a 42-year-old mother, is on first-name terms with her local pawnbroker.

Pickwick Pawnbrokers
Pickwick Pawnbrokers is located in one of London's oldest street markets

She visits Pickwick Pawnbrokers, behind a vegetable stall on south London's bustling East Street market, about four times a month to pawn her gold hoop earnings, necklaces and rings when she needs cash to make ends meet.

Today, however, she is buying - a gold ring with blue stones she spotted in the shop window.

"If I buy gold, then I can use it as back-up if I need some money quickly," she says, putting the ring straight on her finger.

"I don't know what I'd do without these guys."

A box of Heroes chocolates sits on the counter - a gift from another grateful customer.

Pawn shops still carry a Dickensian image of mother pawning father's best suit for a paltry sum.

Many people are surprised to find that pawnbrokers still exist, let alone thrive, in 21st Century Britain.

And with banks and credit card firms becoming more choosy about whom they lend to as the credit crunch intensifies, pawnbrokers are filling the gap.

"People think it's dour, downmarket and downtrodden," says Nathan Finch, the owner of Pickwick Pawnbrokers.

"But for people like Dolores, it's just like sticking a bill on a credit card."

Long history

Pawnbroking has a long history.

Its roots go back to ancient China, while the symbol of the trade - three gold balls - was part of the Medici family crest in 15th-Century Italy.

Nathan Finch
What a recession or a tightening of credit does is send more of the mainstream credit customers to alternative sources of credit, like us
Nathan Finch, Pickwick Pawnbrokers

In the late 1800s, there were almost as many pawnbrokers in Britain as pubs, but this number dwindled after World War II - a time of high job security and the advent of the welfare state.

The Consumer Credit Act of 1974, which modernised the 1872 Pawnbrokers Act, paved the way for the revival of the trade during the 1980s credit boom and subsequent economic downturn in the early 1990s.

According to the National Pawnbrokers Association (NPA), there are about 800 pawnbrokers in the UK - and this number is growing at 10% a year.

"Many people don't know how it works and once they realise that a pawnbroker is not trying to keep their things and flog them, they are more willing to give it a go," says Des Milligan, head of the NPA.

"Today, most pawnbrokers only lend money against gold and diamond jewellery - electronics lose value too quickly as new brands come in."

Small sums, high rates

Rates of interest vary little across the industry, with most pawnbrokers charging 8% a month - 8 on a 100 loan.

"It's less than going into an unauthorised overdraft in the short-term," Mr Milligan says.

Pawnbrokers typically lend up to 50% of an item's value
Items can be redeemed at any time, but loan term is usually for six months
Loans are usually 100 to 150, with a minimum of 5
Typical interest rate of 7-8% a month
Source: National Pawnbrokers Association, Pickwick Pawnbrokers, H&T Pawnbrokers

In the longer term, however, borrowing money from a pawnbroker is expensive. The annual rate of interest is more than 100%.

More than 80% of customers come back to claim the items they have pawned.

"We make our money on the interest charged. It's not about acquiring goods cheaply," says Mr Finch at Pickwick Pawnbrokers.

Mr Finch keeps his customers' goods in neatly labelled small plastic bags in three large safes at the back of the shop.

Security is tight. Cameras take pictures of each new customer, who must ring a bell to be let into the shop.

Growing respectability

Pawnbroking began as a fragmented trade tucked away on backstreets. But now bigger chains, such as H&T Group and Albemarle & Bond, are bringing it to plum spots on Britain's High Streets.

H&T Group has a chain of 93 shops throughout the UK, 36 of those opened in the last three years with the funds raised by a stock market flotation in 2006.

H&T Pawnbrokers, Paddington
Modern pawn shops are brighter and lighter than their predecessors

Its well-lit red and blue shop-fronts resemble a cross between a jeweller's and a building society.

John Nichols, the firm's chief executive, says the increased visibility of his stores is a key factor behind the firm's success. His firm made a profit of 7.2m last year, up 52.5% from 2006.

Despite its reputation as a "bad times" industry, Mr Nichols is adamant his business does best when the economy is doing well and customers are confident they can pay back the loan.

But others in the industry concede that an economic slowdown, especially one combined with a significant tightening of conventional credit, is no bad thing for pawnbrokers.

"What a recession or a tightening of credit does is send more of the mainstream credit customers to alternative sources of credit, like us," says Mr Finch at Pickwick.

Gold boost

The soaring gold price has also been a factor in the growth in pawnbroking, as people realise that coins, old wedding rings and unwanted jewellery are now valuable assets that can be sold or borrowed against.

Testing gold
Pawnbrokers can easily tell whether jewellery is real gold

Jewellers, who find it harder to sell gold jewellery as prices rise, have branched out into pawnbroking as a way to keep profitability up.

Ten years ago, gold traded at $275 a Troy ounce. Today that price is closer to $1,000.

"It's really made people think about old bits of broken jewellery at the back of the drawer," said Mr Nichols.

H&T began buying gold from customers in 2007 and it has become a lucrative part of its business.


Compared with other forms of credit on offer to people on modest incomes, such as pay-day loans and doorstep lending, pawnbroking can be a ready source of cash at a lower cost.

Three million or so Britons do not have bank accounts, while many more find it hard to get credit cards and overdrafts because of poor credit ratings.

"If you need a small amount of cash for a short time, like if your boiler breaks down, it can be a decent option," says Chris Tapp, director of debt charity Credit Action.

I'd rather go to a pawnbroker's to get cash than go to a bank
Man in Paddington pawn shop

Pay-day loans, which are also becoming more popular as the economy slows, charge 20 to 25 on every 100 borrowed - an APR of more than 1,000%.

However, Mr Tapp says there is a danger if people find themselves pawning items on a regular basis, because it is still a high-cost way to get money.

He recommends the government's Social Fund, which makes small grants and loans to those in need via job centres. Cheaper loans can also be found at local credit unions.

Shoddy service and high charges at banks are also among the reasons why some people say they prefer to use pawn shops when they need cash.

"I don't give a damn whether someone thinks I am coming in to pawn my coat. I'd rather go to a pawnbroker's to get cash than go to a bank," said one man at a H&T pawn shop in Paddington in central London. "Banks are obnoxious."

But, like most of the half-a-dozen customers I encountered at two London pawn shops, he was reluctant to give his full name, let alone have his photograph taken.

While pawnbrokers are working hard to dispel the industry's aura of backstreet financial shame and transform it into a modern, slick financial service, it's clear that pawn shops still carry a stigma for many.

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