Value of pawnbroker loans increases 41%

The value of loans taken out from pawnbrokers has increased 41% in just a year, from £158 million in 2021 to £223 million in 2022 according to research by international audit, tax, and advisory firm Mazars.

The figures also show that arrears on pawnbroker loans, high-interest loans secured with a personal item held as a guarantee, are also rising sharply, up 34% in 2022 to £57 million from £42 million in 2021. This means that many are at risk at forfeiting their personal items if they fall behind on payments. Interest rates on pawnbroker loans can typically reach 120-160% APR.

In pawnbroking loans, individuals give up their valuables in exchange for money with the option to reacquire the asset once the debt, plus interest, is paid. However, if the loan is not repaid in full on time, then the pawnbroker becomes the legal owner of the asset.

Paul Rouse, Partner at Mazars, says the cost-of-living crisis has taken its toll, stretching people’s finances to the limit, and pushing an increasing number of people who can’t secure credit to scramble for money from high-interest options. Spiralling inflation over the past year made it harder for people to stay on top of their bills, forcing some to take out short-term loans to cover unexpectedly high costs.

Rouse said “The cost-of-living crisis is taking a big bite out of household finances. An increasing amount of people are finding that they need quick access to small loans to keep up with rising costs and are being forced to turn to pawnbrokers. This upward trend should be concerning – in the short term it is a sign that too many people are struggling. It’s even more worrying in the longer term, with no end currently in sight to the period of elevated interest rates.”