How does pawnbroking work?
Discussion
I happened across Posh Pawn last night which follows an upmarket pawn broking business in London.
Last night there was a chap with a Ferrari who wanted money to put into his business, a chap with a big yacht who wanted to release some equity out of it and a chap with a huge diamond ring who wanted to invest in a business - he thought it could be worth £30-£40K, turned out to be worth £200K!
Anyway, the bit that wasn't mentioned at all (although maybe it was in an earlier episode) was how it actually works. The guy with the Ferrari for example, the pawn broker just found him a buyer (and no doubt took a cut), I didn't think that's how it worked, I thought the idea was to use the asset as security on a loan?
That seemed to be what the yacht owner was doing, they reckoned his boat was worth £650,000 and loaned him £180,000. Presumably in that instance the chap has to repay the £180,000 plus interest but I'm curious - what happens if he doesn't? Does the pawnbroker effectively seize the yacht, sell it and keep the money? Or do they keep their money and give him back whatever is left? I could see some big arguments over what the boat was worth if so.
Does the borrower pay instalments like a normal loan or does he simply have a time frame and an amount to pay back - so maybe he borrows the £180,000 on the basis that he has to pay back £200,000 18 months later?
The guy with the ring didn't sound like he was going to end up with a chunk of cash so presumably he'd have a payment plan and get the ring back at the end?
Just really curious as to how it all works.
Last night there was a chap with a Ferrari who wanted money to put into his business, a chap with a big yacht who wanted to release some equity out of it and a chap with a huge diamond ring who wanted to invest in a business - he thought it could be worth £30-£40K, turned out to be worth £200K!
Anyway, the bit that wasn't mentioned at all (although maybe it was in an earlier episode) was how it actually works. The guy with the Ferrari for example, the pawn broker just found him a buyer (and no doubt took a cut), I didn't think that's how it worked, I thought the idea was to use the asset as security on a loan?
That seemed to be what the yacht owner was doing, they reckoned his boat was worth £650,000 and loaned him £180,000. Presumably in that instance the chap has to repay the £180,000 plus interest but I'm curious - what happens if he doesn't? Does the pawnbroker effectively seize the yacht, sell it and keep the money? Or do they keep their money and give him back whatever is left? I could see some big arguments over what the boat was worth if so.
Does the borrower pay instalments like a normal loan or does he simply have a time frame and an amount to pay back - so maybe he borrows the £180,000 on the basis that he has to pay back £200,000 18 months later?
The guy with the ring didn't sound like he was going to end up with a chunk of cash so presumably he'd have a payment plan and get the ring back at the end?
Just really curious as to how it all works.
In that example of the boat, the guy will use the boat as collateral on a loan. If he doesn't repay the loan, at whatever interest rate is agreed with the pawn broker, then the pawn broker will take ownership of the boat, and can sell it to recover his losses.
They will probably edit out the "tedious paperwork" section where they do whatever checks are necessary to ensure that the boat isn't stolen from elsewhere or owned elsewhere etc, that wouldn't make good TV...
They will probably edit out the "tedious paperwork" section where they do whatever checks are necessary to ensure that the boat isn't stolen from elsewhere or owned elsewhere etc, that wouldn't make good TV...
If I could cheekily piggy-back onto the OP's thread, one thing I always wondered is where the pawnbrokers themselves get all of their money from - they seem to pay out tens or hundreds of thousands of pounds a day in some cases.
Is it just an open-ended overdraft from a bank or something or is there a third party involved?
Is it just an open-ended overdraft from a bank or something or is there a third party involved?
I am not sure about the UK but in the US there are set rules about pawning goods, repayment terms, fees etc.
Its all controlled by the state and the pawn shops have to have a licence and they are limited in how they can operate.
Its still very costly though to pawn something and actually go and get it back!
Pay day loans are more common in the UK than pawning but its a similar idea its just unsecured.
Its all controlled by the state and the pawn shops have to have a licence and they are limited in how they can operate.
Its still very costly though to pawn something and actually go and get it back!
Pay day loans are more common in the UK than pawning but its a similar idea its just unsecured.
Like so many TV shows posh pawn is in no way representative of the industry, in fact the show likely isn't even representative of Prestige pawn who's core income will come from low to medium level transactions of largely gold and watches.
Pawn shops provide a service to those (many) who cannot access regular credit.
Of course there interest rates are high in the same way WBAC don't offer retail money.
The industry is huge, most is loans and purchases of £50 - £100, Posh pawn is a TV programme in the same way that made in Chelsea is.
Showing unemployed people selling an Elizabeth duke 9ct chain would not get the ratings.
Pawn shops provide a service to those (many) who cannot access regular credit.
Of course there interest rates are high in the same way WBAC don't offer retail money.
The industry is huge, most is loans and purchases of £50 - £100, Posh pawn is a TV programme in the same way that made in Chelsea is.
Showing unemployed people selling an Elizabeth duke 9ct chain would not get the ratings.
But how does it work? Okay so I've got my Elizabeth Duke 9ct chain and I visit my local pawnbroker. I hand it over, he lends me £50.
Do I have to make repayments? Or is there a fixed period - ie I have to give him £100 within a year to get it back? Does he have to give me first refusal after that or does he just pop it in the window, and if he pops it in the window at £150 (assuming he's loaned me a third of the value) then what happens when someone gives him £150, does he keep the lot? Is he better off if people default?
I'm not thinking of using one, in fact it's because it is so far outside my sphere of experience tat I am so curious about them.
Do I have to make repayments? Or is there a fixed period - ie I have to give him £100 within a year to get it back? Does he have to give me first refusal after that or does he just pop it in the window, and if he pops it in the window at £150 (assuming he's loaned me a third of the value) then what happens when someone gives him £150, does he keep the lot? Is he better off if people default?
I'm not thinking of using one, in fact it's because it is so far outside my sphere of experience tat I am so curious about them.
Yipper said:
Pawnbrokers, low-end or high-end, are a very expensive way to borrow money. They charge crazy interest rates and fees and valuations.
What sort of rates? The TV is full of adverts for payday loans at 1,000%+ and credit shops at 1350%+ and added insurance. Pawnbrokers more expensive, even with 'secured' loans?
I don't know for sure, but I thought you took in your diamond ring (valued at £150) and got a loan from the pawn broker for £50. You then had an agreed amount of time to repay the £50 plus interest or the ring (in this case) was forfeit and the pawn broker could sell it for whatever he liked. Usually it's something like a month. Hence the stuff in the pawn broker's window with price tags.
If the pawn broker values the ring at £150 and the person who has pawned it doesn't return, then he gets a tidy profit even at £100. But also a profit of the (extortionate) interest if they do. Win win for the pawn broker.
If the pawn broker values the ring at £150 and the person who has pawned it doesn't return, then he gets a tidy profit even at £100. But also a profit of the (extortionate) interest if they do. Win win for the pawn broker.
Ari said:
But how does it work? Okay so I've got my Elizabeth Duke 9ct chain and I visit my local pawnbroker. I hand it over, he lends me £50.
Do I have to make repayments? Or is there a fixed period - ie I have to give him £100 within a year to get it back? Does he have to give me first refusal after that or does he just pop it in the window, and if he pops it in the window at £150 (assuming he's loaned me a third of the value) then what happens when someone gives him £150, does he keep the lot? Is he better off if people default?
I'm not thinking of using one, in fact it's because it is so far outside my sphere of experience tat I am so curious about them.
You give him your goods, he gives you money either to buy or loan,Do I have to make repayments? Or is there a fixed period - ie I have to give him £100 within a year to get it back? Does he have to give me first refusal after that or does he just pop it in the window, and if he pops it in the window at £150 (assuming he's loaned me a third of the value) then what happens when someone gives him £150, does he keep the lot? Is he better off if people default?
I'm not thinking of using one, in fact it's because it is so far outside my sphere of experience tat I am so curious about them.
If it's a loan you have to pay fixed interest to redeem the goods after an agreed period. If you don't goods become his property to sell at whatever price and he keeps all proceeds.
My understanding is that the majority of goods loaned are never redeemed and thus are sold.
If you bought a new Casio Edifice watch for £200 on Monday, cash converters would probably buy it from you for £40 on Tuesday as an example.
I think you get 28 days to buy something back and pay interest, a mate of mine was skint and pawned his camera a nice one too, he just borrowed what he needed to get him till payday at the end of the week , camera worth i believe about 400 quid but he just asked for what he needed, he bought it back a week or so later and i think it cost him 12 quid in interest. i think most cash converter places offer extensions too if need be for a moderate charge. i might be wrong on that but thats what i was told . Told my mate he was daft and should have just asked , i would have lent him 50 quid and no interest or rush, hes a good pal since childhood and would do the same for me if i ever needed.
Ari said:
But how does it work? Okay so I've got my Elizabeth Duke 9ct chain and I visit my local pawnbroker. I hand it over, he lends me £50.
Do I have to make repayments? Or is there a fixed period - ie I have to give him £100 within a year to get it back? Does he have to give me first refusal after that or does he just pop it in the window, and if he pops it in the window at £150 (assuming he's loaned me a third of the value) then what happens when someone gives him £150, does he keep the lot? Is he better off if people default?
I'm not thinking of using one, in fact it's because it is so far outside my sphere of experience tat I am so curious about them.
The details can work in different ways because the big advantage of pawn brokers is flexibility in arrangements but that comes at a cost, despite the good collateral, it is an expensive form of borrowing and an inefficient way to sell second hand goods.Do I have to make repayments? Or is there a fixed period - ie I have to give him £100 within a year to get it back? Does he have to give me first refusal after that or does he just pop it in the window, and if he pops it in the window at £150 (assuming he's loaned me a third of the value) then what happens when someone gives him £150, does he keep the lot? Is he better off if people default?
I'm not thinking of using one, in fact it's because it is so far outside my sphere of experience tat I am so curious about them.
The item will be safe for the agreed pawning period by contract law. The item can be retrieve by paying everything owed before the expiry of the pawning period. The broker can only sell the item after that has expired and then some. While the pawn period is fixed at the beginning, it can be extended by paying the accrued interest, so paying this week's interest gains a week and this can be kept like a rolling window. This period is the customers first refusal and much shorter than the year you suggest. A week to three months. The customer will get a lower valuation for three month loan compared to a one week loan, since the head room in valuation needs to cover the accumulated interest.
After the full period has expired, the item essentially becomes sold to the pawn broker for value of the loan plus any accumulated charges and interest. The full debt is cancelled and the item forfeit. This is why initial valuation is critical to the business model. Their financing will largely be their own accumulated capital. They only need to sell enough forfeit goods to keep their float intact. The low value jewellery will be melted down into bullion for sale.
Edited by 4x4Tyke on Monday 5th March 17:23
I'm sure on one of the programmes they quoted the interest rate as 2% a month.
So I believe what happens is they pawn their ferrari for a £100k loan, pay £2k per month in interest and then get the ferrari back when they repay the £100k.
Expensive way to lend money, but you don't get that flexibility from a bank.
One thing that always surprises me though, is when someone comes in with a diamond ring and says they want to sell it for at least £10k, why do they come back and say it's worth £30k so they can pay £25k?
Why don't they just give them the £10k and make a quick £20k profit? Are they regulated, do they have to give an honest valuation? Or even just say £15k, they buyer would be over the moon getting £5k more than expected as most seem to be clueless to the actual real value.
So I believe what happens is they pawn their ferrari for a £100k loan, pay £2k per month in interest and then get the ferrari back when they repay the £100k.
Expensive way to lend money, but you don't get that flexibility from a bank.
One thing that always surprises me though, is when someone comes in with a diamond ring and says they want to sell it for at least £10k, why do they come back and say it's worth £30k so they can pay £25k?
Why don't they just give them the £10k and make a quick £20k profit? Are they regulated, do they have to give an honest valuation? Or even just say £15k, they buyer would be over the moon getting £5k more than expected as most seem to be clueless to the actual real value.
Edited by alistair1234 on Friday 9th March 12:36
alistair1234 said:
I'm sure on one of the programmes they quoted the interest rate as 2% a month.
So I believe what happens is they pawn their ferrari for a £100k loan, pay £2k per month in interest and then get the ferrari back when they repay the £100k.
Expensive way to lend money, but you don't get that flexibility from a bank.
One thing that always surprises me though, is when someone comes in with a diamond ring and says they want to sell it for at least £10k, why do they come back and say it's worth £30k so they can pay £25k?
Why don't they just give them the £10k and make a quick £20k profit? Are they regulated, do they have to give an honest valuation? Or even just say £15k, they buyer would be over the moon getting £5k more than expected as most seem to be clueless to the actual real value.
You are confusing what happens on the TV show with everything in real life. So I believe what happens is they pawn their ferrari for a £100k loan, pay £2k per month in interest and then get the ferrari back when they repay the £100k.
Expensive way to lend money, but you don't get that flexibility from a bank.
One thing that always surprises me though, is when someone comes in with a diamond ring and says they want to sell it for at least £10k, why do they come back and say it's worth £30k so they can pay £25k?
Why don't they just give them the £10k and make a quick £20k profit? Are they regulated, do they have to give an honest valuation? Or even just say £15k, they buyer would be over the moon getting £5k more than expected as most seem to be clueless to the actual real value.
Edited by alistair1234 on Friday 9th March 12:36
But the guys on TV are seen to have a conscience of sorts, and won't actively screw someone over every time. It keeps their name in the good books as well.
There isn't as much risk for them with something like jewellery - it has a known market so if the seller defaults, it can be quickly passed on and make them say £5k with little to no overhead required, which is what they want to avoid, having stock sat around for ages that doesn't sell
I used to be a pawnbroker:-
I used to lend a % of the current resale value of the item.
I will use an example: -
Someone came in with an 18 ct ladies Rolex with no paper but the box. It had some work done on it and was generally in fairly good condition.
The first question is "how much do you need?"
there is little point continuing with assessing the items if they have ideas that the items are worth lots.
In the Rolex case the customer wanted £1000.00. I am happy as I can sell the item for £3000 into the trade so I am covered.
Paperwork is done, and the customer leaves with the money.
The customer then has up to 6 months to collect the item, and I charged 10% per month, so it the item was left for the full 6 months the customer would need to pay £1600.00 to collect.
If the item is not collected it does not become yours to do what you like with, as suggested by others. You must write to the customer explaining that the time has lapsed and given them to opportunity to collect. If there is no reply form a second letter you can then dispose of it.
He is the bit that people miss. You cannot sell it to your self for £1600.00, you must make reasonable efforts to get the realistic market value for the item. Once the item is sold you must return any balance to the customer, less any expenses incurred in the sale.
So in the case of the Rolex.
After 6 months I wrote a letter, to a caravan site.
Wrote a second letter
I then sold the Rolex for £3200.00
So there is a balance of £1600.00, less expenses incurred.
I had had some work done on the watch to make it more saleable and advertised it. This cost £600.00
The balance of £1000.00 is legally due back to the customer.
So, I rote another letter to the customer, and went to visit. They had moved on. If she had returned I would have had to return the £1000.00 she didn't
With regard to funds for pawnbrokers, there are plenty of high net worth individuals who will fund high value loans. If is very profitable with the pawnbroker paying say 2.5% per month for the cash. Much better than a bank would offer.
Sadly the TV programs are a total set up. The normality of pawn broking is small loans and letting people down who have unrealistic thoughts as to an items worth,
I did have a few businessmen who would pawn items on a Thursday and collect the following week. They used me to help with cash flow and accepted the higher cost, but if was an immediate loan, no credit checks, etc.
Some took the view that this was better than going over a limit on their bank account etc.. or having payments bounce for example.
One customer used me for buying drugs. He was a small time dealer. He would come in on a Thursday and pay be back on a Monday. Repeat each week. He had a lot of gold and each week the pile grew abit bigger. I stopped dealing with him when I realised what he was up to. I think he is now in prison.
I used to have a good relationship with the local Police
I used to lend a % of the current resale value of the item.
I will use an example: -
Someone came in with an 18 ct ladies Rolex with no paper but the box. It had some work done on it and was generally in fairly good condition.
The first question is "how much do you need?"
there is little point continuing with assessing the items if they have ideas that the items are worth lots.
In the Rolex case the customer wanted £1000.00. I am happy as I can sell the item for £3000 into the trade so I am covered.
Paperwork is done, and the customer leaves with the money.
The customer then has up to 6 months to collect the item, and I charged 10% per month, so it the item was left for the full 6 months the customer would need to pay £1600.00 to collect.
If the item is not collected it does not become yours to do what you like with, as suggested by others. You must write to the customer explaining that the time has lapsed and given them to opportunity to collect. If there is no reply form a second letter you can then dispose of it.
He is the bit that people miss. You cannot sell it to your self for £1600.00, you must make reasonable efforts to get the realistic market value for the item. Once the item is sold you must return any balance to the customer, less any expenses incurred in the sale.
So in the case of the Rolex.
After 6 months I wrote a letter, to a caravan site.
Wrote a second letter
I then sold the Rolex for £3200.00
So there is a balance of £1600.00, less expenses incurred.
I had had some work done on the watch to make it more saleable and advertised it. This cost £600.00
The balance of £1000.00 is legally due back to the customer.
So, I rote another letter to the customer, and went to visit. They had moved on. If she had returned I would have had to return the £1000.00 she didn't
With regard to funds for pawnbrokers, there are plenty of high net worth individuals who will fund high value loans. If is very profitable with the pawnbroker paying say 2.5% per month for the cash. Much better than a bank would offer.
Sadly the TV programs are a total set up. The normality of pawn broking is small loans and letting people down who have unrealistic thoughts as to an items worth,
I did have a few businessmen who would pawn items on a Thursday and collect the following week. They used me to help with cash flow and accepted the higher cost, but if was an immediate loan, no credit checks, etc.
Some took the view that this was better than going over a limit on their bank account etc.. or having payments bounce for example.
One customer used me for buying drugs. He was a small time dealer. He would come in on a Thursday and pay be back on a Monday. Repeat each week. He had a lot of gold and each week the pile grew abit bigger. I stopped dealing with him when I realised what he was up to. I think he is now in prison.
I used to have a good relationship with the local Police
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