With banks squeezing the lines of credit, many people are looking at alternative ways to get that extra bit of cash. No wonder, therefore, that one sector enjoying a renaissance during these ever more difficult times is pawnbroking. Of course, pawnbroking has a negative image; it is rightly seen as a lender of last resort, with premises often located in downmarket parts of town. For middle Britain, the idea of visiting one is way off the radar no matter how desperate times become.
Knowing this, one broker, Borro, has set up an online service ( www. borro.com) catering for people who want to avoid the potential stigma of visiting premises with the traditional three balls sign above the door.
"People are struggling – with middle Britain their options are being diminished. The cost of living has gone up and access to mainstream credit is now very limited. As a result, we are attracting the middle class," said Paul Aitken from Borro.com. As if to underline his point, Birmingham Midshires said last week that one in seven Britons currently have to raid their savings just to meet everyday household bills such as energy or food.
Borro.com's business model is standard for the pawnbroking industry, except that it is done online and therefore lessens the potential embarrassment for the client. It offers short-term loans of £100 to £100,000 and will lend up to 40 per cent of the pawned item's second-hand value. More usually, loans are in the hundreds rather than thousands of pounds.
After filing out an online form, customers are sent a pre-paid envelope and a courier in an unmarked vehicle collects their belongings, which are stored in a vault. No charge is levied.
Customers will have six months to repay the loan and interest of between 3 to 6 per cent is charged each month, depending on the size of the loan. Generally, according to borro.com, the interest charged on its loans equates to 84 per cent when spread out over an entire year. If the customer defaults on a loan, Borro will sell the item to recover the principal and interest and a £15 administration fee. "Sixty-five per cent of the people who use our site are female; women have a tendency to look after the household bills and are more likely to have easily pawned items such as jewellery.
"We are now seeing people borrowing to pay for Christmas and we expect to see people afterwards as they have overspent," Mr Aitken said. While most of the items that people pawn are watches and jewellery the website does accept antiques, sporting memorabilia, musical instruments, signed Harry Potter books and even a Ferrari. But if you find yourself in need of cash, pawnbroking should very much be a last resort, says Richard Mason, spokesman from financial advice website moneyextra.com:
"The annual rate of interest on a loan from a pawnbroker is high, so why not sell the item outright. A good place is eBay. Although pawnbrokers will give you cash, by selling an item and buying a similar one you can make money. You can maximise the price by ending the auction at a peak time and buying off-peak will get a lower price. The other more long-term option, if you're struggling with existing debt, is to come to an arrangement with your lenders or see a debt charity and examine reducing your repayments."
Another widely promoted route to quick cash is the payday loan. A raft of providers has sprung-up advertising on social networking websites such as Facebook. The loans are cash advances on the salary you're expecting at the end of the month. Once you've received your wages, you pay the money back to the lender. The debt is repaid on payday by a post-dated cheque or debit card. But these loans also come with health warnings. "It's an expensive form of borrowing. If you don't pay it back, it rolls over and mounts up quickly," said Frances Walker from debt charity the Consumer Credit Counselling Service.