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New Peer-to-Peer Pawnbroker: Unbolted
Unbolted has just launched. It is the newest peer-to-peer lending company to focus on pawnbroking.
The company is regulated by the UK's Financial Conduct Authority and backed by early investors in Ocado.
It is currently not accepting new lenders. It is not unusual for brand new P2P lending companies to build up borrowers first before allowing more lenders to take part.
Pawnbroking against jewellery and fine items
The company helps you lends when it can value pawned items with confidence. John Pye Auctions, a large commercial auction house, conducts the valuations for unbolted.
Unbolted lists examples of goods it can value and lend against. It largely includes jewellery, fine art and antiques, plus fine wine and luxury cars.
It won't lend against electronics. Co-founder Ashwin Parameswaran explained to me that the main reason that these goods are often worth less at the end of the loan period than Unbolted's minimum loan of £500.
Unbolted also doesn't do property loans, but it will, said Ashwin.
Unbolted: protecting lenders from bad debts
As usual in pawnbroking, there are no credit checks on the borrowers. Instead, the loan is for far less than the valuation of the goods. The maximum loan is for 70% of the value of the item. (This can differ for gold. More on that in a moment.)
Unbolted holds the pawned items in its own possession and it will sell them in a public auction if the borrower doesn't repay.
Rito Haldar from Unbolted told me that it expects losses to be less than 1%.
Interest rates and costs
Rito told me that lenders will get 8% on gold loans and 10.5% on the rest.
There are no lender fees, but 4thWay has explained many times this does not mean its free. Read There's No Such Thing as “No Lender Fee”.
As you'd expect for a low-risk pawnbroking P2P company, which is likely to have relatively high costs in checking pawned items and administering loans, the bulk of the revenue goes to Unbolted rather than you the lender.
Borrowers' average APR is 33.1%, so your real lending costs (what the borrower pays minus what you receive) is in the region of 20 to 25 percentage points. Two-thirds of the revenue from the borrower is therefore going to Unbolted.
You can automatically lend against types of goods that you specify and up to amounts that you specify, or you can select individual loans for yourself.
All the loans are for six months.
A cautious approach to gold
Unbolted sometimes offer loans against items with gold in them against the value of the gold only. This is a “significant market worldwide”, said Ashwin.
Lending against gold is inherently riskier. Indeed, it has caused pawnbroking companies to suffer serious trouble in the past when they have been too greedy, over-stretched themselves, and then seen the consequences when gold prices have collapsed. This Economist article has an outline.
However, when it comes to gold, Unbolted expresses a conservative approach: no speculating about price rises and buying up gold; just valuing jewellery properly.
Unbolted offers extra protection. If an item has gold in it, Unbolted takes out a kind of insurance (called a “derivative contract”) to fully protect against the price of gold falling too far.
For borrowers, Unbolted claims it costs less than half as much as Borro, which may assuage some lenders' concerns about ethics.
Ashwin explained to us that Borro has higher costs by paying fees to middlemen such as financial advisors to acquire most of its customers, among other reasons.