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Pawnbroker Lending Experiences Nearly Four-Time Increase

by Jim ONeil on February 21, 2012

in pawnbrokers

Pawnbrokers are just one category of alternative lenders benefiting from the financial shortcomings of many UK consumers. Droves of people are taking short-term loans from pawnbrokers to cover living expenses.

Cash Converters, a high street pawnbroker, recently reported that its UK personal loan book nearly quadrupled from 2010 to 2011. Customers are exchanging jewelry and diamonds for instant cash or taking out a smaller personal loan.

For the 12 months through December 2011, the value of UK personal loans held by Cash Converters skyrocketed from £2.3 to £8.5 million. The company operates 208 stores in Britain alone where consumers can exchange valuable jewelry and gems for up to £10,000 in financing per contract.

In October, the company introduced an online personal loan application for consumers who need between £500 and £2,000 in cash over the short-term. Repayment schedule for this financing ranges from four to seven months.

According to the company, 96 percent of people applying for these payday loans online were new customers. Though the loans APR is much higher than rates offered by traditional high street banks, the financing is more convenient for consumers and available to those who have poor credit.

Most borrowers make repayments monthly via a direct debit from their designated bank account. Those who need an immediate cash advance of £10 to £600 can visit a Cash Converters store and arrange a weekly, fortnightly, or monthly repayment schedule.

To qualify for the longer-term no credit check loans, consumers must be older than 18 and are required to provide three identifying documents, one with a signature and another verifying address.

The N.I. Number, last three pay slips, a valid debit card, and bank statements for the last 90 days are also required. For cash advances, the age, debit card, and document requirements apply and bank statements from the previous 60 days are required.

Cash Converters is just one of a growing number of payday lenders operating in the UK. Payday loans have become very popular with Brits in particular since the financial crisis. However, not all have used them successfully, which has landed them in deeper debt.

During the last six months of 2011, the number of Cash Converters customers failing to repay a loan increased by over one-fifth and the company reported bad debts of 11 percent of total lending.

The additional risk involved in lending to bad credit consumers is the main reason for the higher loans APR. Cash Converters and other providers of payday financing are tightening their lending criteria to reduce their bad debts. In addition to checking whether consumers have outstanding payday loans, lenders are hiring collections staff to recoup their money.

It could not be easier to apply for no credit check loans, which leads many Brits to view this as a first resort. These loans are effective at filling an immediate and short-term need for cash.

However, they should be used sparingly and repaid as quickly as possible to limit interest charges. Until the UK economy improves, lenders like Cash Converters should continue to be successful.

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