Money: Pawn shops are changing: hock, stock and barrel

Once the dingy refuge of the desperate, pawnbrokers have become mainstream lenders.

Pawning your valuables isn't just for the desperate. It can be a useful short-term fix if you need a loan. And with the school holidays about to start, pawnbrokers are bracing themselves for record business as holidaymakers pawn items to pay for their getaways.

Barry Compton, manager at the Golders Green branch of Wagonmark, says: "There are so many late cut-price deals around that a lot of people decide to go on holiday at the last minute when they haven't been saving up for it. Because we can deliver loans in foreign currencies, they often use us as a bureau de change as well.

"Some people who bring in their jewellery to pay for their holidays are motivated partly by the fact that they know it will be much safer with us than in the home while they are away. Our levels of security rival those of most banks."

The pawnbroking industry nearly died out after the introduction of the welfare state but it has been growing since the early 1980s. Pawnbrokers are regulated by the 1974 Consumer Credit Act and are becoming increasingly mainstream. Many look like bank or building society branches.

Nathan Finch, spokesman for the National Pawnbrokers' Association, says: "We are the people's bank and it would not surprise me to see as many pawnbrokers by 2010 in the high streets as we currently have banks and building societies."

Borrowing from a pawnbroker involves leaving a valuable item as security. This is returned when the loan is repaid. Most pawnbrokers lend only against jewellery and watches but some will take fine art, antiques and even cars.

Loans are normally given for up to a third of an item's value in return for an agreed rate of interest - usually between 3 per cent and 8 per cent a month.

When you hand over your item you are asked to sign a credit agreement and will be given a copy of this together with a pawn receipt. The two are usually combined in one document.

You can get your item back within six months by producing your receipt and paying what you owe under the agreement.

If you don't redeem it within that time and the loan is for pounds 75 or less, then the broker becomes the owner. If you borrowed more than pounds 75, the pawnbroker can sell the item to recover the debt. If the sale makes more than you owe, then the surplus is yours, but you will still be liable for any shortfall if it sells for less than your loan.

Using a pawnbroker isn't a cheap way to borrow. A pounds 200 loan over two months from a pawnbroker charging interest at 6 per cent a month would cost pounds 24 over two months, whereas an authorised overdraft from Barclays for the same loan would cost pounds 15.80, allowing for all charges.

However, not everyone can get an overdraft or can afford the time to arrange one. Pawnbrokers can complete deals within minutes. They require proof that an item belongs to a borrower but do not carry out credit assessments or take references.

Users range from businessmen seeking to raise short-term funds to clinch deals to consumers paying for utility bills, school fees and holidays.

Some pawnbrokers also offer cheque cashing facilities for third party cheques. These are popular with those not considered creditworthy enough to be granted bank accounts but who need to cash cheques relating to wages, inheritances and lottery wins.

Rates of interest on this, as with monthly rates for pawnbroking loans, vary according to the firm and the amount involved and it is well worth shopping around by phone initially.

Most cheque cashing rates for amounts of under pounds 500 are between 5 per cent and 7.5 per cent. You will usually be charged an initial handling fee of between pounds 1.50 and pounds 3.00 per transaction.

WHERE DO I GO?

n Stick to members of the National Pawnbrokers Association (0171- 242 1114) as these have been stringently vetted.

Harvey & Thompson (0800 838973) and Albemarle & Bond (0117- 959 1766) are the two main national chains. Albemarle & Bond only deals with jewellery and high-value watches but Harvey & Thompson will extend to clocks, cameras, guitars and even memorabilia.

TM Sutton (0171-834 0310), in London, will lend against fine art and specialises in larger loans. Its sister company, EA Barker (0171-283 2982), has particular expertise in cuff-links and watches.

East Ham-based Phillips (0181-472 0805) will deal with cars, musical instruments, computers, cameras, helicopters and boats.

n Wagonmark (0181-458 0620), with five branches in London and one in Canterbury, lends against art and antiques, cars worth above pounds 10,000 and designer-label clothing.