A Guide to Pawnbrokers
What You Need to Know
- Pawnbrokers offer short term loans secured against items of your personal property. For example, you could use your TV as security.
- Pawnbrokers do not carry out credit checks, making them a good option if you have a low credit rating.
- You don’t have to pay your loan back in instalments. Instead you can pay it all at the end of the agreed term.
- Interest rates offered by pawnbrokers are normally around 8% per month.
- If you fail to repay after six months, the pawnbroker can sell the item you’ve left with them as security.
- If you lose your ticket of receipt, you may need to swear a legal oath to prove the item left as security belongs to you.
- All pawnbrokers are governed by the Consumer Credit Act 1974.
What is a Pawnbroker?
Pawnbrokers offer their customers easy access to short term credit. By using a pawnbroker it's possible for almost anybody to acquire a loan, regardless of their credit history.
How Do Pawnbrokers Work?
Pawnbrokers will accept personal possessions as security against a loan. In plain terms this means you can take them something valuable that you own, such as a television set, for example, and they will loan you an amount equivalent to how much they believe they could potentially sell it for.
This will normally be around 2/3 of what you paid for it, but take a look around various pawnshops to see how much items like your are going for to ensure the loan amount reflects a good price.
Electrical goods are a popular choice when looking for something to pawn and, due to current high prices for gold, jewellery is also often a good choice.
When you have paid back the loan, plus the interest owed, you will receive your property back. Note that, in order to reclaim your security, you will need to keep hold of the ticket of receipt that you are given when you hand your item over. Losing it can lead to complications, more on which further down the article.
The loan amount will be decided by the value of your ‘pawn’ (the item you provide as security). However, the other arrangements, such as the term of the loan (how long you have to repay it) and the level of interest will be decided by the pawnbroker.
They will agree these terms with you and write them down in a credit agreement. This is a legally binding contract so be sure to read it carefully before signing it.
The interest will normally be between 5-12% a month. Most charge 8% and you should shop around to see if you can’t find a better deal if you are offered a rate higher than this.
The interest per month is more relevant than the APR (interest over the course of a year) as it is unusual for the ‘term’ offered by a pawnbroker to be longer than a year, with most lasting six months or less.
How Do Repayments Work?
Unlike other types of loans, when you borrow from a pawnbroker you are normally allowed to pay all you owe back at the end of the term, rather than in regular instalments.
If you need more time to repay, the pawnbroker may extend the term or draw up a new credit agreement to give you a chance to find the money, though they can refuse and will normally only consider an extension if you have at least paid back the interest.
Bear in mind that, no matter how long the agreed term of the loan, it makes sense to pay it back as soon as you can, as you save on interest.
What Happens If You Fail to Repay?
If you cannot pay back the loan at the end of the term and the pawnbroker does not allow you an extension, you will not get the property that you pledged as security back.
Legally, the pawn broker has to keep hold of it for six months before they can sell it (which is why pawnbrokers tend to make the term for their loans six months).
After this time, the pawnbroker can sell the item in order to recover the money you owe them. If the ‘pawn’ was worth less than £100 they do not even need to give you notice of this or send you any reminders. If it was worth over £100 they have to give you notice in advance, so that you have a chance to pay them and avoiding losing your property.
If the amount raised by selling your ‘pawn’ does not cover what you owe, you will still have to pay the remaining amount.
However, if the pawnbroker recovers all they're owed through the sale, they are legally obliged to give you the extra money. But remember, they will normally only do this if you ask them for it!
What If You Lose The Ticket?
If your ‘pawn’ was worth less than £75 they can give you a ‘standard form’ which you can sign to state that the property is yours. However, they are not obliged to do this.
If the ‘pawn’ was worth more than £75 or if you can not get a standard form, you need to legally swear that the goods are yours by going to a magistrate (there should be a number of voluntary magistrates in your local community) or a Commissioner for Oaths (or a Justice of the Peace if you live in Scotland.)
You can also go to a solicitor to sign an oath. In all these cases there will probably be a fee for the service.
If you fail to do this, the pawnbroker does not have to give you your property back.
So, Why Use a Pawnbroker?
One of the main reasons people use pawnbrokers is that no credit checks are involved. As the pawnbroker has your property as security to cover the risk of lending to you, they do not need to examine your credit history.
As a bad credit rating can make it hard to gain credit from most mainstream sources, pawnbrokers can provide a good alternative for many people.
As these checks are lengthy, skipping them by using a pawnbroker makes the process much quicker. Normally you will have your money the same day you sign your agreement. Ideal if you are in a hurry.
Finally, going to a pawnbroker will get you a much lower rate of interest than you would get from a payday loan provider, and it can even be cheaper than using an unauthorised overdraft, even with a good current account.
Obviously, the amount of credit you can acquire is limited to the value of the possessions you have lying around and are able to live without. However, if you can get the money you need this way, it can end up being a much cheaper way of borrowing.
All pawnbrokers are governed by the Consumer Credit Act 1974. As a result, they must give you a receipt showing the amount of credit secured by the item you’ve pawned, the date that you must repay by and the rate of interest, as well as any other charges that might be involved.
- Strapped for cash? Try our guide to freecycle.
- Find out more about the rules of consumer credit from the Office of Fair Trading.
- Prefer not to offer security? Read our guide to payday loans.
- Be wise to the many loan scams doing the rounds at the present time.
- You might also want to consider one of the other methods of short term borrowing.