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 lend money quickly without credit checks and charge higher rates of interest than high street banks.

What are pawnbrokers?

  • You hand over the item (known as a pawn) to the pawnbroker who will value it for you.
  • The pawnbroker should give you a ‘Pre-contract Information Document’ detailing the terms of the credit agreement before the transaction takes place.
  • You’ll sign a credit agreement with the pawnbroker and be given a period of time in which to pay back the loan. The maximum is seven months, but it can be less, such as 30-90 days, for example.
  • The pawnbroker gives you a pawn receipt which you’ll need to keep to prove you own the item.
  • When you’ve repaid the money owed you get the item back. But if you don’t repay the loan after the agreed period the pawnbroker can sell it to recover the cash.
  • It is possible to extend the loan, once you have paid back the accrued interest.
  • There is a 14-day cooling off period, within which you have a right to withdraw from the agreement.

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 often a lot less than a payday lender.

You’ll be quoted a monthly interest rate, although the pawnbroker must also show you an APR or annual percentage rate. Shop around to find the most competitive rate of interest, which can be anything from between 5-12% a month.

You are normally allowed to pay all you owe back at the end of the term, rather than in regular instalments and you should be able to pay back part or all of your loan early.

If you need more time to repay, the pawnbroker can extend the term and draw up a new credit agreement, although they can refuse. They will normally only consider letting you borrow for a longer period of time if you have at the very least paid 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 army tanks.

Pawnbrokers – the pros

  • There are no credit checks so if you have a poor credit rating you can borrow.
  • It’s quick – normally you will have your money the same day you sign your agreement.
  • A pawnbroker should let you redeem your goods at any time and only charge interest for the period you have borrowed the money.
  • It is at the pawnbroker’s risk – not the customer’s – if the valuation of the item was wrong if, once the item is sold, it does not cover the full costs of the original debt.

Pawnbrokers – the cons

  • Using a pawnbroker can be a relatively expensive way to borrow when compared to other types of borrowing.
  • 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 need to ask the pawnbroker to extend the deadline, but they are not obliged to let you do so.

If you borrowed less than £75 and you cannot repay the loan, the item will belong to the pawnbroker. If you borrowed more than £75, the pawnbroker can sell it but it still belongs to you.

If the loan is for over £100 the pawnbroker has to tell you in advance that they are going to sell it. This gives you a chance to pay them and get your goods back.

The best value for the item must be obtained and any surplus gained – after the debt is paid and costs deducted (such as auction costs) – should be returned.

What happens if you lose your receipt

If you borrowed less than £75 you can get a ‘standard form’ from the pawnbroker which you sign to say the property is yours. Remember the pawnbroker does not have to give you this.

If you borrowed more than £75 or if the pawnbroker will not issue a standard form, then you need to legally swear that the goods are yours by 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. Otherwise the pawnbroker does not have to give you your property back.

What to do if you feel they have been unfair

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 you need help to complain, the Financial Ombudsman Service (FOS) can contact the pawnbroker for you.

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 FOS, who may be able to take further action.

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 may not be what you want.

Alternatives to pawnbrokers

Borrowing money via a pawnbroker is expensive and can cost you more than money. Make sure you consider other options.

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