Pawnbroking is back in fashion - in a big way.

Posted in 'Personal Finance' by Richard Catlin

24 June 2010

Pawnbrokers have been helping people make ends meet for centuries – accepting valuables as security against short term loans. In the past, TV sets, jewellery and wedding rings have been often used, but a new breed of pawnbroker, responding to a surge in demand bought about by the recession, is now babysitting a wide range of valuables – including sports cars, planes, and pieces of art by Banksy.

The economic downturn has meant an increase in the number of ‘high earners’ with cash flow problems, who have found that they cannot get finance from traditional sources.

Step forward the new breed of online pawn broker – borro.com.

Locked away in their underground vault are possessions worth millions of pounds – including two Ferraris, a light aircraft, and a first edition Harry Potter (they’re worth up to £7,000 apiece by the way). Customers use valuables as collateral, pay back the amount they borrow over a period of 6 months, and once it’s repaid, retake possession of their goods.

There are limits to what borro can lend against – recently declining a farmer's request to use his herd of sheep and cows as collateral – mainly due to the problems storage would present.

The pawning of high-value items shows that it’s not just people on the breadline who need a hand from time to time. People from all walks of life are now seeking help, and as borro is an online broker, loans are available quickly and discreetly. Low overheads and realistic valuations often combine to give a better rate than you could get from a traditional pawnbroker.

You can find full details of how borro works, and typical rates, by clicking here.

Depending on how quickly you need the cash, there are alternatives of course. Payday loans are well established, and although the stated APRs, such as the 1737% that PaydayUK quotes, can scare most people, it must always be remembered that this is an anomaly caused by the fact that the law seeks an annual compound rate to be quoted, notwithstanding that payday loans are intended to be short term only. When used as a short term solution to bridge cashflow, payday loans are often cheaper than bank overdrafts, when bank arrangement fees are taken into account.

Depending on your credit rating, and again, how quickly you need the money, a credit card that offers 0% APR on purchases can be the ideal solution to unexpected expenses. The MBNA Platinum Dual Card currently offers 0% on all purchases for 10 months, or alternatively, gives you 0% on transfers to your bank account (a 4% fee applies) for 10 months – allowing you to use the cash however you like. Unlike loans from borro, to qualify for an MBNA Platinum Dual Card you must have a minimum income of £20,000, and the credit assessment process involves a credit check. The typical APR of the MBNA Platinum Dual Card is 16.9%.

If you’re unsure about whether your credit rating will determine whether you’re likely to be accepted for traditional ways of borrowing, or if you might need to consider an alternative, you can check your credit report online with checkmyfile.

Check your credit report now