Middle-class professionals cash in cars, jewellery and other possessions to continue paying for children’s private education
Middle-class families are increasingly pawning their possessions, such as luxury cars, to pay for school fees and holidays, The Sunday Times can reveal.
Pawnbrokers, which lend money using a customer’s valuables as security, were once the preserve of the unemployed and those on benefits. However, since the economic downturn began in 2008, they are seeing significant amounts of business from wealthy customers who need access to instant finance.
TGS Pawnbrokers, which has 14 shops in London, launched a service this year called Cash4MyCar to allow motorists to pawn their vehicles in return for an immediate loan. It has lent against Bentleys, Porsches and Aston Martins.
Paul Zimbler, head of Cash4MyCar, said: “Parents are coming to us when they don’t have enough money to pay the following term’s school fees. We had a client last week who had to find cash immediately, or take his child out of school.”
Another customer, from southwest London, runs her own school. She took out a loan against her car because pupils’ parents were not able to pay the fees. “She’s borrowing money to keep the school afloat,” Zimbler said.
“We’ve also seen a considerable number of people coming in for finance to fund holidays,” he added. “They put down deposits thinking they’d have the funds to pay the final bill. When they don’t, and they don’t want to lose their deposit, they pawn their cars.”
Kirill Savrassov, from Oxford, is typical of the new type of customer. The 35-year-old, originally from Belarus, was made redundant this year from an insurance company. His children — Michael, 11, and Darya, 7 — attend the Dragon School in Oxford.
We had a client last week who had to find cash immediately, or have to take his child out of school. While he could meet Darya’s fees of £4,040 a term, he needed extra cash for Michael’s, costing £5,630, so he took a £4,200 loan from borro.com, the online lender, against his Vacheron Constantin watch.
Savrassov said: “A friend had used Borro and recommended it. I am starting a new job next month, so I plan to pay back the loan then.”
Pawnbrokers say customers are attracted by the prospect of ready money with no questions asked — unlike with banks, which conduct rigorous credit checks. Pawnbrokers simply value your item and agree the amount they will advance, typically about 50% of the value.
Borro, which lends between £1,000 and £1m against high-end valuables, has quadrupled its lending in the past six months and expects the trend to continue. TGS Pawnbrokers opened eight of its fourteen shops in the past three years and plans to open another soon.
Andrew Lazurus, head of TGS, said: “Credit cards are at a maximum and banks are far too slow in providing loans, if they will at all. Using a pawnbroker lets you access instant cash. It’s not a cheap long-term option, but it can get you out of immediate trouble.”
Loan terms are usually six months and you’ll pay a monthly interest rate, typically tiered to the amount you borrow. This figure may look cheap by the month, but can be pretty frightening over a year. For example, Savrassov is paying Borro 4.99% interest a month, or just under £210, which works out to an annual rate of 68.8%. If you took out a loan of less than £500 with TGS you would pay 8% a month, which comes to 152% when annualised. Cash4MyCar charges 10% a month, so 214% a year.
Like payday loan companies, pawnbrokers are governed by the Consumer Credit Act, which means they have to lend responsibly and provide a clear contract outlining loan terms and interest rates.
There are no caps on interest rates so they can charge whatever they like. They tend to levy high rates because most people borrow for a short time so would never pay the full quoted annual rate.
Customers who pawn goods can get them back at any time during the contract period by settling the original loan, plus any interest. When the loan term is up there are three courses of action. The first is to pay the capital and any interest due to get back the item. Alternatively, you could pay just the interest accrued and apply for an extension to your loan.
Or, if your loan is for more that £100 and you don’t pay it off or renew it, the pawnbroker will give notice that your property is to be sold. If you don’t respond or redeem the item within 14 days, the company will sell it. If the proceeds are greater than the amount due to the pawnbroker, you will get the balance.
Check that your goods will be covered by your home insurance policy as you will not be covered by the broker.
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