Pawnbrokers could be answer to short-term cash problems
RAISING SHORT-TERM finance can be both time-consuming and difficult with few lenders prepared to offer for less than a year. The secret could be to turn to a pawnbroker.
A cashflow problem may not be a subject that everyone wishes to reveal to their bank or building society. Such traditional sources can often be catatonic in their approach.
When they do respond, they usually require excessive information even though you may have been a customer for decades.
The whole narcoleptic process from the decision-making to the release of money can take time. It will be interesting to see if the socalled ‘challenger’ banks identify this need and respond with a sensible, speedy service.
By comparison, a pawnbroker will advance funds to anyone aged 18 years and over with no credit checks provided there is a security.
This is typically an article of gold or silver, diamond jewellery or a quality watch but the Cashbrokers chain is happy to consider from rare toys to speedboats. The H&T Group says it will “buy anything, even if it’s broken.”
The decision to lend is made quickly and the money can be advanced in some cases within one hour. This can be a lifeline, particularly for the selfemployed, who may need funds urgently for a goods payment or a VAT return.
The sums advanced are rising rapidly. From £297m in 2017 to £339m in 2018, the trade has increased by 14 per cent.
This is the mainstream business whilst many pawnbrokers also provide other money services from cheque cashing facilities to foreign currency exchange.
The loan period is usually six months but this can be curtailed if interest is paid up to the date the security is redeemed. If the time needs to be extended beyond a half year, it can usually be renewed provided the minimum interest has been paid.
Independent research by Moneyfacts shows that most personal loans from traditional sources, although unsecured, usually run from one year to five or even 10 years. The single exception is M&S Bank (owned by HSBC) which offers loans of £15,001-20,000 for 37 months and longer at a representative rate of 3.5 per cent.
The interest levied by pawnbrokers is a major disincentive. Unlike longerterm bank loans which may start as low as 2.9 per cent
APR, depending on the credit rating, pawnbrokers like CashConverters and H&T quote 155.8 per cent APR. If £100 was borrowed over six months and repaid in one instalment, the fixed rate would be of 119.9 per cent and cost £159.34 in total.
Cashbrokers with 19 outlets – including Brighouse – says it will discount the interest rate for large value items.
The traditional sign denoting a pawnbroker is three balls suspended from a bar and is attributed to the Medici family of Florence who came to prominence in the early 15th century.
The sign may be more discreet today but it is not necessary to visit an outlet to obtain a valuation. The leading firms have set up online arrangements.
CashConverters say goods will be checked against a police data base. However, there are no credit checks and so the pawnbroking deal is not entered on any personal files maintained by credit reference agencies like Equifax, Experian or Leedsbased TransUnion, formerly known as CallCredit.
Among the myths is that gold has to be hallmarked to be a security.
Loans will be offered even without assay office marks. If a pawn receipt is lost, the article can still be redeemed.
The pawnbroker will retain the security and if it is not redeemed will either send it to auction or sell it, usually through one of their branches. To be discreet for the customer who has pledged but not redeemed an item, H&T with 247 outlets make a point of not selling at the same store.
Since the pawnbroker has already made a profit on the transaction, they are frequently happy to sell articles at a distinct discount to other retailers, notably in the fields of jewellery and watches.
The articles pledged are certainly not all related to precious metal.
Increasingly, cameras, computers, home audio equipment and video game systems are offered.
The aptly named Prestige Pawnbrokers will lend against art, luxury cars and designer handbags. They will accept fine wine, provided it is ‘in bond’ meaning that excise duty and VAT have not been paid which makes it more appealing to diplomatic and overseas buyers as well as those who want to invest in it.
The art can be as wide ranging as Banksy to Monet. They have handled letters from a Rolling Stone and will consider antiques, coins and rare stamps.
Such firms employ specialists who can appraise articles and offer a proportion of the true worth in order to cover costs in case there is no redemption as well as profitability.
The oldest firm operating today is H&T, originally Harvey & Thompson, which started in 1897 when the Marquis of Salisbury was Prime Minister. Over the years it has absorbed James Hempseed & Son, Lewins and last year took responsibility for the loan book of Albemarle & Bond which had failed.
The latter had 113 shops – some trading under the 180 year old Herbert Brown brand – and was owned by Daikokuya Holdings, a Japanese pawnbroker.
Another way to benefit from pawnbroking is to invest in it. H&T believes “the UK alternative credit market is not adequately serviced by mainstream lenders.”
Two companies have floated on the Alternative Investment Market (AIM): H&T in 2006 and Ramsdens Financial in 2017.
The latter, based in Stocktonon-Tees, opened its first branch in 1987 and has now grown to 162 stores.
Private client stockbroker, Hargreaves Lansdown, is listed as owning almost eight per cent.
CashConverters is a subsidiary of CashConverters International which has an Australian stock market quotation. It opened in the UK in 1991. It is a franchise firm whose 45 members operate 197 stores of which 28 are located in Yorkshire.
For many centuries pawnbroking has been a recognised financial service.
It is thought to have originated over 3,000 years ago in China. Even monarchs have used the facility. Edward III pledged his jewels in 1338 to raise funds for a war with France.
In the Victorian age, there were almost as many pawnbrokers as public houses in Britain. The trade has moved with the times and clearly has a role to play in providing shortterm finance for generations to come.
■ Conal Gregory is AIC Regional Journalist of the Year.