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The SMF found a common reason people use pawnbrokers is to get cash that is used for household essentials – including food and rent – typically at the end of the month, when they are running out of money, adding that loans secured by pawning possessions are typically less than £100.
One interviewee said: “I need this money to be able to buy food. It is as simple as buying food.”
Another person added: “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.”
When asked about the potential impact of pawnshop closures, interviewees said alternatives included going without food, heat, using doorstep lenders or payday loans.
Some raised concerns that if their local pawnbroking shop were to close, they would not be able to afford to travel to the nearest alternative shop, in another town or area.
One person explained: “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.”
SMF director James Kirkup said it was a “simple fact of life” that some people on low incomes need credit to manage their expenses.
He said: “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 the 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 of the National Pawnbrokers Association, explained people from all walks of life use a pawnbroker when they have gaps in their cash flows.
He added: “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.”
Peter Kenyon, Chief Executive of the pawnbrokers Ramsdens Holdings PLC commented: “We welcome the findings of the Social Market Foundation’s report, which clearly demonstrate the important role that pawnbrokers bring to high streets across the UK by providing access to this responsible, asset-backed and customer-friendly form of lending that has been around for hundreds of years.
“Due to misconceptions around pawnbroking, many consumers use other, more expensive borrowing options instead. Pawnbroking is a simple to understand product and those that use pawnbroking are highly satisfied with the service offered. Pawnbroking needs to be given greater awareness as a borrowing solution for customers and hopefully this will reduce the numbers of consumers, estimated at over 1 million, using illegal money lenders.
“At Ramsdens we are proud to have offered professional pawnbroking services to customers for decades, and will continue to do so as the need for these services will invariably become more important than ever as the cost of living continues to rise and the need for responsible forms of lending increases.”
It comes as new research from The Food Foundation shows more and more families are struggling to pay for food through the cost of living crisis.
“The situation is rapidly turning from an economic crisis to a health crisis,” said Anna Taylor, executive director of The Food Foundation. “Food banks cannot possibly be expected to solve this. The government needs to realise the boat is sinking for many families and it needs to be fixed.”