People borrowed 20% more from pawnbrokers in the past year as part of the cost of living impact, according to research by Mazars.
The research showed that 341,000 people now owe money to pawnbrokers, up from 317,000 from last year.
The value of loans taken out from pawnbrokers has jumped 20% in the past year, with lending increasing from £144 million to £174 million.
The figures show that 24,000 more people have turned to pawnbrokers for loans in the past 12 months, an 8% increase from 316,962 to 341,302.
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 spiralling inflation is making it harder for people to stay on top of their bills, with more people having been forced to look for short-term loans to cover unexpectedly high costs.
“The cost-of-living crisis is taking a big bite out of household finances. More 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.”
Since the start of the pandemic the Financial Conduct Authority has tightened its restrictions on high-cost consumer credit, such as doorstep lending. This has led to a surge in growth among pawnbrokers as more people with weaker credit histories need short-term loans but have fewer options for finance.
“The cost-of-living crisis is leaving people in serious financial stress. More people are in need of quick cash. Due to low numbers of lenders now targeting borrowers with weaker credit histories, pawnbrokers can seem like the easiest route to securing that cash.”
“The measures outlined in the Chancellor’s September mini-budget are also unlikely to provide much immediate assistance to people most likely to be resorting to pawnbrokers to stay on top of their bills.”
In response to the research Ray Perry CEO of The National Pawnbrokers Association said “The research by Mazars refers to old data and currently market growth is much slower. Also, the term arrears doesn’t meaningfully exist in pawnbroking. You can’t fall behind on a pawnbroking loan, there is only one payment date-the end of the contract- a customer can redeem or reduce the loan at any time during the term.”
“Customers don’t get ‘the option to buy back the goods’, the title remains with the customer. If the loan is not repaid or renewed it would be sold, with any net surplus being returned to the customer or any outstanding debt written off. Customers use pawnbrokers because they offer a cheap solution at a reasonable interest per month, they are not ‘forced to turn’ to pawnbrokers.”