People on low incomes are pawning household goods to pay for food and rent as the cost of living rises, new research shows today.
The Social Market Foundation said that pawnbroking is an essential source of credit for some customers, who feel they have no alternative ways to borrow.
The importance of pawnbroking to people on low incomes is likely to grow as the cost of living rises, the SMF said in a report based on extensive interviews with pawnbroking customers. The report was supported by the National Pawnbrokers Association – the SMF retained editorial independence.
However at the same time as the need for pawnbrokers is growing the number of pawnbroking shops is falling, and has halved in seven years. NPA members had 2,091 shops in 2014. That number had fallen to 865 last year.
The SMF interviewed a sample of pawnbroking customers from across the UK to explore their reasons for pawning property and their other options for borrowing if they need credit.
A common reason given by interviews for using pawnbrokers was to get cash that is used for household essentials including food and rent, often at the end of the month when they are running out of money. Loans secured by pawning possessions are typically less than £100, the SMF said.
Examples of quotes from interviews about their reasons for using pawnbroking:
“I need this money to be able to buy food. It is as simple as buying food.”
“Usually it’s for food and bills. It’s more near to the end of the month if I’m struggling or if it’s been a long month.”
“It’s for essentials and essentials only, other than Christmas.”
SMF interviewees were asked about pawnshop closures and the potential impact on them if they were unable to use pawnbroking services. Respondents’ alternatives included using doorstep lenders and payday loans, or going without food or heat for lack of cash.
“If I need to use [pawnbroking] for food, that would mean me having to use a food bank or really budgeting for food at the beginning of the month.”
“It would have a detrimental effect. If I have an emergency at the end of the month or I need to get a week’s shopping it would be making ends meet by me and my husband not eating very much. It would be the same with limiting gas, water, and electric usage.”
Jake Shepherd, SMF Researcher and report author, said:
“Having spoken with customers directly, I’ve learned that pawnbrokers can play an important role in people’s financial lives. At times when we’re in need of a financial safety net, many of us take credit cards, bank loans, and even savings for granted. But they are luxuries that not all people have access to.
For people on low incomes, the alternatives to pawnbroking can be even more risky and costly. In a credit environment where options are already limited, the closure of pawnbrokers could be devastating for some customers. As the cost of living continues to surge, policymakers ought to recognise the importance of credit for people on low incomes and consider improving the borrowing options available to them.”
James Kirkup, SMF Director, said:
“It is a simple fact of life that some people on low incomes decide they need credit to manage their everyday lives. For some, pawnbroking offers a credit option that they find more suitable and attractive than the alternatives that are available to them.”
“We might wish to live in a world where wages and benefits were higher and people don’t need to borrow money just to make it to end of the month. But sadly that isn’t the case, so some people on low incomes do indeed borrow just to get by. Politicians and regulators should pay more attention to that fact, and think harder about how to ensure the market in credit for low-income customers works better and more fairly.”
Ray Perry, CEO National Pawnbrokers Association, said:
“People from all walks of life use a pawnbroker when they have gaps in their cash flows which may be for essential living needs or for a business need. It is a simple service, easily understood by customers with over 85% of customers repaying their loans and for the 15% who do not repay there are no ongoing debt consequences. We at the NPA are concerned that the banks’ attitude to the pawnbroking sector, based on outdated perceptions, is a major reason for the decline in the number of pawnbrokers.”
“The industry is highly regulated, much needed as evidenced by the SMF and we are working with UK Finance, the banks, FCA and HM Treasury to change perceptions especially when the need for small sum borrowing is growing due to the inflationary pressures on food and energy costs.”
- The report, Extending credit, is published at smf.co.uk/publications/extending-credit/.
- The SMF report was supported by the NPA under a contract ensuring the SMF’s editorial independence. The SMF independently sourced interviewees with experience of pawnbroking based on methodology drawn up by the Personal Finance Research Centre at Bristol University.
Key points from the report
- Pawnbroking customers have lower than average incomes and are sometimes living in difficult and precarious financial circumstances.
- Pawnbroking customers interviewed for this report largely said that they use pawnbroking as a form of cashflow management, gaining access to credit that they use for routine living costs when cash is short, for instance towards the end of their financial month.
- Interviewees reported that they are generally satisfied with pawnbroking services. Some complained of high interest rates, but they also regarded those rates as an inherent aspect of pawnbroking.
- Interviewees said they use pawnbroking because they have few or no other significant alternative means of accessing credit products. They would like to be able to borrow from high street banks, but believe that is not possible because of their credit score.
- Interviewees reported significant uncertainty about what they would do if they could not access pawnbroking services. Alternatives suggested by interviewees included payday loans; doorstep lending; borrowing from friends and family; and selling household items for cash.
- Geography and transport are a significant factor in accessing credit through pawnbroking. Some interviewees said that if their local pawnbroking shop were to close, they have no financially viable way to travel to the nearest alternative shop, which might be in another town or area.
- Lack of access to credit could have serious consequences for interviewees, particularly in the context of rising inflation and falling real incomes, including from benefits. Interviewees concerns include having less scope to spend on food or heating.
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