January 24, 2023 08:30
Low-income households and people with bad credit are turning to pawnshops to raise cash as they are being turned away even by subprime lenders.
Many pawnshops closed down in recent years due to the prolonged ultra-low interest period. They are also classified as lenders and provide loans equivalent to 80 to 90 percent the value of the collateralized items, charging 20 percent interest, which is the legal limit.
If clients fail to pick up their belongings because they cannot pay within the agreed time, the pawnshop gets to sell them to collect the money.
A pawnshop in Seoul's Gangnam last week was filled with luxury goods for sale, from a TAG Heuer watch at W1.65 million to a Dior women's bag for W2.7 million and Louis Vuitton belt for W230,000 (US$1=W1,232).
People who hock their possessions need money quickly. One client dropped off a gold necklace, saying, "This belonged to my mother and I promise to return to retrieve it."
The owner said, "Pawnshops are hard to find these days, so we get people coming all the way from Incheon and even Chungcheong provinces."
One 33-year-old who came from Busan said he managed to lease a flat in Seoul earlier this month for W400 million but borrowed heavily to come up with the deposit and came to hock his possession to pay the movers. He left his laptop computer and took home W1.2 million. "I've already borrowed all I can from banks, so I thought it'd be better to pawn some of my possessions rather than turning to loan sharks."
Pawnshops are becoming popular again as even middle-class people feel the pinch amid soaring interest rates and runaway inflation.
Also people's homes are increasingly put up for auctions by lenders as owners fail to repay their loans. According to court records, 18,580 homes were put under the hammer in the fourth quarter of 2022, up 17 percent from a year ago.
Jung Jae-hoon at Seoul Women's University said, "People who need money fast can find themselves in a difficult position and resort to drastic measures, so we must find ways to help them."
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