The cost-of-living crisis has shown no signs of slowing down, with energy bills expected to rise yet again in October – and not before the inflation rate hits double-figures for the first time in 40 years. Times are hard for everyone, and many are struggling to make ends meet between paydays.
However, many are also struggling to access lending solutions that suit their needs. However, there is one form of lending that has been on high streets for generations – centuries, even – and that not many understand. What is pawnbroking, and how could it help today?
What is Pawnbroking?
Pawnbroking, in essence, is an alternative to bank lending that utilises your physical assets as a form of collateral. The practice has been in use for millennia, with evidence to suggest that pawnbroking was popularised in ancient China over 3,000 years ago. Pawnbroking has had an immeasurable impact on history in the intervening years, having been a crucial source of funding for major historical undertakings and events, from the Hundred Years’ War to the colonisation of the Americas.
The practice has endured and grown in popularity as society has changed and grown; reputable pawnbrokers exist today, whether on the high streets or, increasingly, in digital spaces. They are an extremely useful resource for some, and vital one for many – but how does the process work exactly?
How Does Pawnbroking Work?
Pawnbrokers are, in short, second-hand merchants and short-term lenders combined. They receive valuable goods from customers, valuate them based on market rates and the quality of the items, and loan that value to the customers while holding on to the items as a form of collateral. They retain the items for a pre-agreed period of time, during which customers can repay the loan with a pre-agreed interest rate. If the loan isn’t repaid in the agreed time scale, the items are sold on to cover costs.
This is the way pawnbroking has worked for hundreds upon hundreds of years, and today is no different. Pawnbroking is a simple formula not easily improved upon, but technology has improved access to certain resources, enabling people to pawn their goods online with ease.
The applications of pawnbroking are also no different now than 3,000 years ago. Through pawnbroking, people can access and leverage the value of their possessions at short notice – one particularly useful application of which can be found in the form of the ‘payday loan’.
Essentially, items can be pawned ahead of a payday, in order to bring cash in early. The items can be recovered on payday through using wages. Pawnbroking is a particularly popular way to do this owing to the relatively low rate of interest in comparison to other forms of lending – with payday loan companies recently getting regulated over charging irresponsible rates of interest on short-term lending agreements.
Pawnbrokers also do not look at credit scores before offering a loan, with its value being protected by the pawned item; as such, customers with bad or no credit history can quickly, conveniently and safely access short-term lending.