Finding the best ways to borrow Borrowing from a pawnbroker
Pawnbrokers usually lend for up to 6 months and hold your property as security
How pawnbroking works
Pawnbrokers lend you money in return for an item you provide, or ‘pledge’, as security – typically jewellery. As the loan is secured on an item of value, which the pawnbroker can sell if you default on the loan, your credit history is not checked before you can borrow.
Your item is usually locked in a safe while it’s with the pawnbroker, but it does not insure the item while it’s held there. The term of the loan is usually six months, although it can be longer. You can pay the loan back whenever you want and get the item back. You pay interest for each month you borrow the money.
How pawnbrokers are regulated
Pawnbroking is regulated by the Consumer Credit Act 1974 (CCA). Under these rules, if you don’t pay off the loan at the end of a six-month term and the loan was for £75 or less, the item becomes the property of the pawnbroker and can be sold. In any other case, the pawnbroker can still sell the item, but you can redeem it before it is sold by paying off the loan plus the interest until that point.
If you borrowed more than £100, the pawnbroker must give you 14 days’ notice that it intends to sell the item to give you a chance to redeem it. And if the loan was for more than £75 and the item is sold for more than you would have been able to pay the loan off for on that day, you are entitled to the extra money.
The pawnbroker may let you extend the loan at the end of the term by paying off just the interest and signing a new agreement.
Your rights when borrowing from a pawnbroker
When you take out a loan, you’re given an agreement to sign, setting out the terms of the loan, which you also take away with you as your receipt or ‘ticket’. You must hand this in to redeem the goods, or you may have to pay a fee of between £2 and £6 for the pawnbroker to issue a statutory declaration saying the goods are yours, plus a solicitor’s fee to get it signed. Lenders must have a consumer credit licence from the Office of Fair Trading (OFT).
The agreement must have information about the type of credit and the annual percentage rate (APR) of interest, how much you need to pay back and by when, and your cancellation rights (previously you couldn’t usually cancel a pawnbroker loan agreement as you signed it on the company’s premises, but new rules from 1 February 2011 change this.)
If you’re not happy with the service you receive from a pawnbroker and the firm doesn’t satisfactorily deal with your complaint within eight weeks, you can complain to the Financial Ombudsman Service.
Pros and cons of pawnbrokers
The advantages of borrowing from a pawnbroker are that you can get cash instantly and it doesn’t affect your credit record, as your report is not checked and it’s not recorded on your credit file.
However, due to the no-questions-asked nature of pawnbroker loans, borrowers are at a greater risk of being able to borrow more than they can afford to pay back.
Another disadvantage is their high cost compared with some types of credit. The APRs charged by the pawnbrokers we visited in late 2010 ranged from 93.21% to 238.56%.
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