Customers who walk through the doors of Ramsdens pawnshops experience the loan service in very different ways.
“We have a very good customer [with] a platinum Rolex, probably worth around £50,000 [or] £60,000,” said company chief executive Peter Kenyon. “He’s a builder and when his cash is low he gives us the Rolex, borrows between £10,000 and £20,000…pays interest at 2% a month and then pays us back when his cash flow improves. .
But Kenyon noted that the chain also helps customers who need small sums because they have to “feed the children or buy the school uniform”.
Britain’s pawnbroking sector is reporting strong growth following the coronavirus lockdown as rapidly rising costs of living boost demand from borrowers seeking small loans, while a crackdown on lenders at high interest rates left customers with limited options. Listed companies that offer “pawnbrokers” – typically small loans secured on assets such as jewelry and watches – have seen strong growth in sales and earnings, pushing their stock prices up in recent years. month.
Shares of H&T Group, the UK’s biggest pawnbroker, are up 37.6% this year, while those of rival Ramsdens are up 8.6% in the same period at the close of trading Monday.
Kenyon said weekly customer numbers at Ramsdens stores were 20% higher than pre-pandemic levels: ‘A lot of it is driven by what the consumer [is] and the cost of living are going up, but we lend for a multitude of reasons — we lend to businesses . . . we lent for school fees.
H&T said this month that its pledge book – loans linked to a client’s asset – was worth £84m in June, up sharply from £48m in the same month Last year.
“The cost of living, yes, that’s absolutely what drives the need to borrow, but I think the bigger of the two issues is that people have fewer options available to them,” said said H&T chief executive Chris Gillespie. “People’s need to borrow has returned. . . but this need has returned in a market where the supply of low-cost credit is massively reduced.
He added that the clear difference between pawnbroking and most other forms of lending was that “our only recourse is the asset. . . we do not and can never return to the borrower if there is a shortfall [in repayment]”.
However, like other forms of lending, there are risks associated with using pawnbrokers.
“Using a pawnbroker can be a relatively expensive way of borrowing and you can usually only borrow a percentage of the value of the item you want to pawn,” said Caroline Siarkiewicz, chief executive of Money and Pensions Service, which is sponsored by the UK Department for Work and Pensions.
Consumers can expect to pay a pawnbroker a higher interest rate than they would for a street loan – but less than a payday lender, according to the Money and Pensions Service.
If a borrower defaults on the loan, ownership of the asset passes to the pawnbroker, who could sell it. They should try to get the best value for the item, and any excess generated after paying the debt should be returned to the customer.
Ramsdens said pawnshops typically charge 8-10% per month. Customers have six months to repay their loan and more than 95% repay the entire loan in one installment.
Siarkiewicz noted that this method of borrowing can be tempting “because it’s a quick way to get access to money.” But she stressed that it was important for customers to “shop around for the most competitive rates and make sure they are regulated by the FCA”.
Around 130 members of the National Pawnbrokers Association run 870 outlets across the UK, representing 97% of the industry. The biggest brands are H&T, Cash Converters and Ramsdens, but most members only run one store.
Many of these businesses profited from the demise of subprime lenders or non-standard finance providers, which flourished after the 2008 financial crisis as traditional banks became reluctant to lend to consumers with blemished credit records.
Ramsdens said he ended his own payday loan offer when market conditions changed.
“It was scary to know where the price was, so people were borrowing £100 and had to pay back £140,” Kenyon said.
The Financial Conduct Authority has clamped down on the sector in response to fears of rising consumer debt levels. The number of active short-term high-cost lenders in the UK fell by almost a third between 2016 and the third quarter of 2020, according to FCA figures.
“The FCA regulated the market almost to death,” Kenyon added.
Wonga, once the UK’s largest payday loan provider, filed for administration in 2018 after a flurry of customer complaints. Provident Financial, one of the biggest players in the UK subprime mortgage market, closed a unit last year that offered “high cost loans”.
Amigo Loans, which offers “guarantor loans” backed by a borrower’s friends or family, has also been pulled from the market. The group is awaiting approval from the FCA to start lending again for the first time since November 2020 following a backlog of complaints and the uncertainty caused by the pandemic.
There are now concerns that people struggling to access credit are turning to buy-it-now and pay-later services, a type of short-term loan that allows consumers to pay for purchases in instalments.
These services have exploded during the pandemic with the rise of online shopping. However, according to survey data from debt charity StepChange, half of those who buy now, pay later loans in the UK said they struggled to keep up with bills household and loan repayments.
Debt charities have also raised concerns about the increased use of pawnbrokers.
“With daily costs soaring, it’s no surprise to hear that more and more people are using pawnshops,” said Theodora Hadjimichael, managing director of Responsible Finance. “But you shouldn’t need to put your wedding ring or a family heirloom at risk to pay for an unexpected expense.”