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Spurned by the banks, Middle Britain is pawning its possessions

The growing ranks of credit card rejects are putting up their valuables to avert a cash-flow crisis

The credit crunch has hit hard and many of us have tightened our belts, but it's a different story for the pawnbroking industry where business is on the up, as more of us search for a little extra cash.

But forget those scruffy shops lurking in dark alleys; pawnbrokers can now be found on the high street alongside banks and building societies, competing with them for our short- term loans business. There are now 800 pawnbrokers in the UK, with new outlets growing at a rate of 10 per cent a year, according to the National Pawnbrokers Association (NPA).

Pawning involves taking out a "secured" loan against a personal possession, often jewellery. You will then pay interest on that money. Like having a mortgage, you only lose your property if you can't repay the loan.

Those sinister Dickensian images of pawnbroking are wide of the mark too, as the industry is regulated under the 1974 Consumer Credit Act. There are strict measures in place to ensure goods can't be sold off before customers have had a chance to repay the loan.

For many years the bread and butter of the industry has been those people with a poor credit rating, or without a bank account, for whom securing reasonably priced loans and credit cards is difficult. But because of the economic tightening, it's now becoming "a popular option for the middle classes", says Chris Tapp from the education charity Creditaction.

As the big lenders react to their own funding problems by cherry- picking customers, they are rejecting new credit card applications at the rate of 18,000 a day, reports the financial comparison site MoneyExpert.com. Those who used to be able to choose from a plethora of 0 per cent card deals to juggle debts or fund a "buy now pay later" lifestyle have now found the taps are being turned off. As a result, they are looking outside the mainstream for credit.

"Pawning can be a good option if you're after a short- term emergency fund," says Mr Tapp. This might be needed to address cash-flow problems if the boiler breaks down, say, or a big bill lands. But he adds that if debt continues to be an issue, extra borrowing will mean "you're merely shifting the problem around and not tackling it". In this situation you should seek specialist help from organisations like Creditaction, Citizens Advice, the Consumer Credit Counselling Service or National Debtline.

Most pawnbrokers want gold or diamond jewellery but some will accept musical instruments, electrical items and cameras. Based on their value, you will be offered a loan for up to six months, with interest charged on a monthly basis.

The interest rate, "can be high if you take it as an annual percentage rate", admits Josh Fish of Fish Brothers, a London-based pawnbroker. But in the short term "based on the average £100 loan, it costs under £8 a month in interest".

This, says Des Milligan, chief executive of the NPA, is much cheaper than an unauthorised overdraft at the bank, which typically costs £30 to £50 a time if you slip just a few pence into the red. "So it can make economic sense to pawn," depending on how quickly you want the money and for how long.

However, "if you're looking for a loan over two to three years then pawnbroking is not the product for you," says John Nichols, chief executive of pawnbrokers H&T.

If you're seeking to sell possessions rather than pawn them, some pawnbrokers will be prepared to take on your business. But as Mr Nichols says: "We give the same amount if we buy as we would on a loan."

People are encouraged to pawn because the hope is that the customer will return to repay the loan in full as well as the interest.

But if you're looking to sell, pawning could generate more money: if you don't retrieve your goods within the six months or so specified in the agreement and they are sold at auction, "the customer is due any surplus after interest charges have been deducted," says Mr Milligan.

Jo Hill is the manager of the Croydon branch of pawnbroker and financial adviser Albemarle & Bond. She says the number of people looking to pawn goods has increased by a third in the past year. "We're getting people in needing cash to pay a credit card or catalogue bill or even borrow £50 to cover the cost of the kids' school uniform," she says, adding that many people find the lack of credit checks appealing. "Even if you don't come back to recover your goods, it won't count against you or affect your credit rating."

Some people may worry that they will never see their possessions again once they've pawned them to raise emergency cash. But Ms Hill says goods are usually recovered within two to three months and over 80 per cent of customers redeem their goods.

'It's harder now to manage to the end of the month'

Charlene Ilori, 26, works full time as a supervisor for a London flooring firm. She earns a regular salary but makes the occasional visit to her local pawnbroker if she runs short of money before pay day.

"With prices going up, it's that little bit harder to manage till the end of the month on what I've got, so I'll often pawn something to pay my credit card bill or for holiday money," says Charlene. "I've got some gold jewellery, and while I don't wear it now, I wouldn't want to lose it. So I tend to take in the same item a couple of months running to get some cash."

She says she typically borrows £100 each time, which costs her £8 a month in interest, though because of the value of her jewellery, she could borrow more. "But that's all I need. In fact the most I ever borrowed was £250." And once she's paid, Charlene returns to settle up and reclaim her jewellery.

She admits she felt awkward the first time she went to the pawnbroker, but adds that it's more economical to borrow this way. "If I run short, it's easier than taking cash out on my card, which costs me fees and interest."