“Eating and petrol. That’s what I use the money for,” says Zach.
The 30-year-old from Chester is explaining how he spent the cash he acquired after pawning his laptop computer.
As the price of living rises, a brand new report suggests individuals on low incomes are pawning their possessions to pay for on a regular basis necessities.
The National Pawnbrokers Association (NPA) says it’ll meet with the UK’s finance watchdog subsequent week to debate the analysis.
The NPA is fearful banks are shutting down pawnbroker accounts due to cash laundering issues and it needs the Financial Conduct Authority (FCA) to work with banks to resolve the problem.
The variety of pawnbrokers has fallen from greater than 2,000 in 2014 to fewer than 900 final 12 months.
The report from unbiased assume tank the Social Market Foundation, which was paid for by the NPA, says pawnbroking is an “essential source of credit for some customers, who feel they have no alternative ways to borrow”.
Zach, who misplaced his job as a plumber in the course of the pandemic and now works as a roadside labourer, agrees.
“I’m not alone. There are a lot of people out there who are really struggling and facilities like this [pawnbrokers] are the only facilities that can help you [get finance],” he says.
“The only reservoir of finance I could find for my assets was the pawnbrokers. That was the only resource I had and if these guys weren’t here I would have gone for weeks without [being able to pay for] food.”
The NPA says the commonest objects pawned are electrical items (telephones, laptops and video games consoles) and jewelry, with the common mortgage being round £300. Across the trade about 85% of things are redeemed by clients.
How does pawnbroking work?
A pawnbroker is a person particular person or store which affords secured loans in opposition to individuals’s private possessions – most frequently objects like electronics or jewelry.
The buyer and pawnbroker agree an quantity that may be loaned in opposition to the merchandise and the way a lot curiosity will likely be charged on the mortgage.
The buyer then has as much as six months to redeem the merchandise and pay the agreed curiosity or, if it isn’t redeemed, the pawnbroker has the authorized proper to promote the merchandise to recoup the unique mortgage and curiosity.
Any surplus cash earned from such a sale needs to be given to the shopper.
Vicki, who describes herself as long-term disabled and is unemployed, receives round £480 a month in advantages.
The 36-year-old has simply redeemed her son’s Xbox after pawning it a number of weeks earlier to have the ability to pay for some meals purchasing.
“Basically [we use the pawnbrokers] so we can buy food and just survive,” she tells the BBC. “The living situation is just horrible.”
Vicki says a poor credit score historical past and no everlasting deal with means getting cheaper credit score from one thing like a financial institution mortgage could be unimaginable.
If she wasn’t in a position to make use of pawnbrokers she says the one various could be doorstep lending or mortgage sharks – unlawful moneylenders who usually cost very excessive rates of interest. It’s one thing Vicki has been pressured to make use of earlier than however by no means needs to do once more.
“I used a loan shark for £100. I fell behind on one of the payments and the people came to my door and I was threatened,” she says.
“For that £100 I ended up paying £700 back… because I missed one payment [so] I’d much rather use a pawnbrokers than a loan shark because you know what you’re dealing with and I know I’m safe.”
Critics of pawnbrokers level out the excessive rates of interest and low valuation of individuals’s possessions as the explanation why they are not a great supply of finance for individuals on low incomes.
Around 10% a month curiosity is typical however it’s charged by the day and the common size of a mortgage is 4 months.
Debt charity StepChange says it will slightly have extra alternate options obtainable to individuals than high-cost credit score however that pawnbroking could be a lot safer than most of the alternate options.
Paul Smit, a former president of the National Pawnbrokers Association, will participate within the assembly with the FCA subsequent week.
He says the Social Market Foundation report “highlights the societal role that pawnbrokers play in providing finance to those who would otherwise be excluded from legitimate finance and would be left with no alternative than illegal, unregulated loan sharks”.
“We hope and believe that, once the FCA appreciate that the loss of access to pawnbroking services would have a devastating effect on these people, that the FCA will work with the pawnbroking and banking industries, both of which they regulate, to agree an approach that will stop the closure of pawnbrokers’ bank accounts by banks,” he provides.
UK Finance, which represents the banking trade, mentioned it recognised the “valuable role” performed by pawnbrokers in offering credit score.
“All banks must follow strict regulations to deal with the risks of money laundering and financial crime,” it mentioned in an announcement.
“Any decision to close an account is only taken after extensive review on a case-by-case basis.”
You can hear extra on this story on BBC Radio 4’s Money Box programme at 12:00 BST on Saturday or hearken to the podcast on BBC Sounds by clicking right here shortly after broadcast.