Britain's debtors flock to pop into their pawnbroker

This week's damning Citizens Advice Bureau report on Britain's billowing debt levels has thrown fresh light on the 3,000-year-old service of pawnbroking. After many exaggerated rumours of its death, caused by the welfare state, it is flourishing again as people try to get out of the debt trap.

The pawnbroking industry has staged a spectacular recovery since the early 1980s, laying increasing claim to being taken seriously as a speedy and convenient way of borrowing money. Many shops have sprung up in high street premises vacated by banks and building societies.

The three golden balls, derived from the coat of arms of the Medici family, were adopted as the symbol of pawnbroking in the 18th century. But the trade goes back to Chinese dynasties of 3,000 years ago. More recently, the "uncle" of the Dickensian era has given way to a respectable financial services operation regulated by the 1974 Consumer Credit Act. Anyone leaving an item with a pawnbroker can normally borrow up to half its value in return for an interest rate of about 6 per cent a month. The owner, who signs a credit agreement and is issued with a pawn receipt, can redeem the item within six months by producing the receipt and paying what is owed under the agreement.

If they do not, the pawnbroker becomes the owner if the loan is less than £75. With unredeemed loans above that, the pawnbroker can sell the item to recover the debt, but any surplus belongs to the borrower.

Clearly, this can leave you worse off than if you were dealing with a bank. Borrowing £500 at 6 per cent a month from a pawnbroker would cost £60 in interest over two months and £180 over six. A £500 authorised overdraft with Barclays would cost only £12.03 over two months and £36.10 over six.

But it can be worth paying over the odds for short-term convenience. One in five people do not have a current account and many who do cannot afford the time to arrange an overdraft. Pawnbrokers do no credit checks or take references and can often do a deal in minutes.

Haywood Milton, managing director of the Liverpool-based pawnbroker Miltons, says: "Our customers have little interest in what we charge, only that we will lend immediately. It also shows they feel borrowing against their own goods means they don't get into debt, in their eyes. Although nearly half our customers use us to pay off a debt, more than a third are financing a holiday or other treat. We have a 40 per cent rise in business before the Grand National because of people wanting to place bets."

Most pawnbrokers say holiday season demand tends to result as much from customers' desire for a safe place for their jewellery while they are away as from a need for cash. It is not uncommon for holidaymakers to deposit all their jewellery and borrow only £100.

Other pawnbroking anecdotes range from broke City traders pawning their Rolex watches to self-employed businessmen raising cash for school fees or for deals. W Phillips & Co, an east London pawnbroker, frequently deals with gypsies who will pawn everything they own to buy a used lorry or caravan. They sell this at a profit and return to redeem their valuables a fortnight or so later.

But the bulk of demand is bread-and-butter, because the average pawn transaction is only £95. Many customers regularly bring in the same things simply for cash-flow management. Margaret Patterson, 54, of Hayes, Middlesex, pawns her gold necklaces, ear-rings and bracelets every month to borrow up to £300 from her branch of the pawnbroking chain, Albemarle & Bond.

Ms Patterson, a widow with seven adult children, is a nurse helping her youngest son Nosa, 22, through university. She says: "I have a bank account but I find pawning much easier than raising an overdraft. I often get the jewellery back in days, as soon as my pay cheque arrives. It's cheaper paying interest than being disconnected for not paying a utility bill and having to pay a reconnection charge."

Most pawnbrokers will lend only against jewellery and watches, although there are exceptions. The London pawnbroker, Robertsons, and TM Sutton in south-west London, will take fine art and antiques, and Harvey & Thompson will take musical instruments and cameras. Wagonmark, which has eight branches in London and the South-east, will sometimes lend against cars.

Many pawnbrokers also offer cheque-cashing, which can be useful for those without bank accounts, or people cannot wait for cheques to clear. Charges vary between 4 per cent and 10 per cent of the amount being cashed, depending on the sum and the firm used.

GUIDE TO PAWNING

* Pawning or pledging is just another way of borrowing. When you settle the loan and charges you get the item back.

* Pawnbrokers must have consumer credit licences from the Office of Fair Trading.

* You will have to sign a credit agreement and given a copy.

* You will also be given a receipt. Keep this.

* You get your item back by paying what you owe, normally within six months.