Pawnbrokers aren’t struggling in this economy

In the current economy families are having problems making ends meet. With unemployment on the rise, some families as well as individuals are trying to find new ways to help pay the bills every month. Pawnbrokers may be becoming a new kind of loan that people are turning to for short term financial assistance.

Pawnbrokers are businesses that offer short term financial assistance for consumers that usually may have bad credit and/or have been rejected for loans and credit cards. The person interested in getting a “loan” from the pawnbroker gives the broker something of value like a item of jewelry as collateral for a loan. The loan, which is typically shorter than 6 months, can have high interest rates. At 3-5% interest a month, pawnbroker loans are still far less than Payday loans, which in the U.S. can have interest rates in the 40-60% range.

In the United Kingdom, in the last 6 months of 2008, the pawnbroker company Albemarle and Bond’s profits increased from 24.9 million pounds to 26.5 million pounds, an increase of 19 percent. Another company, Cash Converters, also had a 120 percent increase in profits.

Some pawnbrokers, like H&T Group (who posted a 36.5% pre tax profit increase) will be increasing its number of stores from 106 to 250 over the next 5 years. From: Struggling Families turn to pawnbrokers

In the UK, the Consumer Credit Act of 1974 is the regulatory action taken against pawnbroker lending activity. The Act says that pawnbrokers have to give customers a detailed receipt as well as provide a final date of redemption and the interest rate the customer will be charged. The receipt is also needed to redeem the “item of value” from the pawnbroker.

In my opinion, while people may see the need for a short term loan, perhaps pawnbrokers shouldn’t be where they turn when they need money quickly. I think that when someone begins taking out short term loans then they fall down a “slippery slope” of debt. To me, a loan like this is like a high interest credit card where a person will go out and spend to the limit of the card then not be able to actually even make minimum balance payments on the card because they simply don’t have the money when the bill comes in.

What happens if a customer doesn’t have a source of income when the loan matures? The pawnbroker keeps their jewelry or valuable and that customer may have lost something very valuable to them because their situation didn’t change from the time they entered into the loan to the time the loan matured.

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