Pawnbrokers – how they work

When you approach a pawnbroker you have two choices – either to leave something valuable as security for a loan, for example, an asset such as jewellery or an antique, or sell the item to the pawnbroker. This article explains the first option. Pawnbrokers can lend money quickly but charge higher rates of interest than high street banks.

What are pawnbrokers?

  • You hand over the item (known as a pawn or pledge) to the pawnbroker who will value it for you.
  • The pawnbroker should give you a ‘Pre-contract Credit Information form’ if you are a new customer - if you’ve borrowed from the firm in the last 3 years, you can ask for this (and it’s always best to do so).
  • You’ll be given a credit agreement to sign - check this carefully and ask questions if you don’t understand anything.
  • The agreement will set out how long the loan lasts and how much it will cost. It will usually be a minimum of six months (but you can agree a shorter or longer period).
  • Unless it’s part of the credit agreement, the pawnbroker will give you a separate pawn receipt which you’ll need to keep to prove you own the item.
  • You can redeem the pawn at any time, by paying what you owe and getting the item back. If you don’t repay the loan during the redemption period, the pawnbroker can sell it to recover the cash.
  • There is a 14-day cooling off period, within which you have a right to withdraw from the agreement and just pay interest for the period of the credit.

If you want to use a pawnbroker choose one that is a member of the National Pawnbrokers’ Association, which has a code of conduct for members.

How do pawnbrokers work? – what you’ll pay, and how

You can expect to pay a pawnbroker a rate of interest that is more than a high street bank loan, but normally a lot less than a payday lender.

You might be quoted a monthly or daily interest rate, although the pawnbroker must also show the annual interest rate and the APR ( the annual percentage rate of charge).

Shop around to find the most competitive rates.

You’ll usually repay the loan in one payment, rather than in instalments.

If you need more time to repay, the pawnbroker might agree to extend the term and draw up a new credit agreement, although they can refuse.

They’ll normally expect you to at least pay back the interest you owe.

What you can pawn

You can pawn anything of value that can be re-sold.

Jewellery is the most popular item to pawn, but people have been known to pawn anything from designer handbags to an exotic or vintage car.

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Pawnbrokers – the pros

  • If you have a poor credit rating it might be easier to borrow from a pawnbroker than another lender, and there might be fewer credit checks.
  • It’s quick – normally you will have your money the same day.
  • A pawnbroker should let you redeem your goods at any time and only charge interest for the period you have borrowed the money.
  • If the item is sold and there is a shortfall, the pawnbroker will usually not pursue you for this (but check whether that will be the case).

Pawnbrokers – the cons

  • Using a pawnbroker can be a relatively expensive way to borrow.
  • You can usually only borrow a percentage of the value of the item you want to pawn. So if, for example, you have some jewellery worth £200, you might only be able to borrow £100.

What to do if you can’t pay them back

If you can’t repay your loan by the deadline and you don’t want your item to be sold, you can ask the pawnbroker if they are prepared to extend the deadline, but they’re not obliged to agree.

If you borrowed up to £75 and you cannot repay the loan, ownership of the item will pass automatically to the pawnbroker.

If you borrowed more than £75, the pawnbroker can sell it and keep the proceeds - but they have to try to get the best value for the item, and if there’s any surplus (after the debt is paid and costs deducted such as auction costs) they have to return this to you.

If the loan is for over £100 the pawnbroker has to tell you in advance, they are going to sell it.

This gives you a chance to pay them and get your goods back.

What happens if you lose your receipt

If you borrowed up to £75 you can ask the pawnbroker for a ‘standard form’ which you sign to say the property is yours.

If you borrowed more than £75, you will need to sign a statutory declaration.

This might involve going to a magistrate or a Commissioner for Oaths, or a Justice of the Peace if you live in Scotland.

You can also go to a solicitor, but they are likely to charge a fee for this.

What happens if you don’t repay the debt

Make sure you know the value of the item before you pawn it, that way you have evidence if you feel the pawnbroker has sold it for less than it was worth.

First, complain to the pawnbroker in writing.

You can use evidence such as newspaper clippings or written quotes to back up your claim.

If the pawnbroker doesn’t respond or you don’t manage to sort out the problem within eight weeks, you can take your complaint to the Financial Ombudsman Service (FOS).

You can take a pawnbroker to the Small Claims Court but there are fees to pay and there is always a risk that the settlement reached might not be what you want.

What happens if your local pawnbroker closes

Sometimes a chain of pawnbrokers will close some of its stores. Here’s some information on what happens and what you should do.

The items you left as security for a loan are normally safe and you can still get them back

The National Pawnbrokers Association (NPA) has stated that, in the event of a pawnbroker that is part of the NPA closes, there’s no reason to believe that your pledges are at risk. Items are usually safely held at a central location.

Your loan is still active, so keep making payments on it

You should continue keeping up with repayments under the terms of your loan. Not paying could affect your credit rating and you may find it difficult to get credit in the future.

How to contact the company that closed down

You can try existing numbers for the pawnbroker that closed down. Alternatively, you can contact the NPA on 01727 858687 who may be able to help you reach the pawnbroker.

If you’re not happy with the response the company has provided

If you’re not happy with the response from the company, or can’t reach them, you can contact the Financial Ombudsman Service to complain on 0800 023 4567 or the FCA customer helpline on 0800 111 6768.

Alternatives to pawnbrokers

Borrowing money via a pawnbroker is expensive and can cost you more than money.

Consider these alternative options below:

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