If you took out a pawnbroker payment holiday because of coronavirus and it’s now come to an end it’s a good idea to get on top of the options available to you, especially if you’ve suffered a drop in income.
What is a pawnbroker agreement?
You can use a pawnbroker in one of two main ways. Either you leave an item of value with the pawnbroker as security for a loan, or you can sell the item instantly for some quick cash. This guide covers pawnbroker loans.
You can pawn anything of value that can be re-sold, but jewellery is most common. The pawnbroker will value your item to calculate how much money it can loan you. Typically, the interest you’ll pay will be much higher than on a personal loan from a high-street bank.
Because you leave an item of value with the pawnbroker as security, there’s a risk you might lose it if you can’t pay back your loan. It’s worth thinking about this before leaving any items that have sentimental value.
What was a pawnbroker payment holiday?
Until 31 October 2020 you can apply for a three-month pause on your repayments – known as a payment holiday or ask for an extension on your existing agreement.
In addition to not having to make repayments, the following will have happened during the payment holiday:
- interest would have still been charged and you may have agreed to make small token payments
- the redemption period for any items pawned was extended by up to 3 months
- if your redemption period has already ended, the pawnbroker shouldn’t give a notice of intention that they would sell the item(s) during this period
- where the pawnbroker had already given you notice to sell, they should suspend the sale for 3 months
- you haven’t had to pay additional charges if social distancing, isolation or shielding measures have prevented payments being made or items collected or repossessed.
Taking the payment holiday won’t have had an impact on your credit report, but missing future payments will. However, you should remember that your credit report isn’t the only thing future lenders will use to decide whether or not to lend to you.
If you didn’t ask your pawnbroker for a payment holiday, your agreement will have been expected to continue as normal.
If you took out a pawnbroker payment holiday because of coronavirus it likely will now have ended or be coming to an end.
What happens when your pawnbroker payment holiday is over?
Repayments will restart automatically after your payment holiday ends.
The payments you’ve missed will be added to your balance for either renewal or redemption. This means your monthly payments can go up when your payment holiday ends to cover the missed payments, or the term of your agreement will be extended.
If you’re still struggling financially from the impact of coronavirus you can also ask for a payment holiday extension of up to three months.
During this holiday your payments will either be paused or reduced.
Where your loan is within the redemption period this can be extended by a further three months.
Where the redemption period has already ended your pawnbroker should not sell your item during the extended agreed payment holiday.
If your pawnbroker has already issued a notice to sell your item, it should suspend this for three months.
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Next steps if your income has dropped or you’re worried about making repayments
The coronavirus outbreak will affect many people’s finances, especially those who have been made redundant, placed on furlough or who have lost self-employment income.
If your income has dropped or you’re worried about making repayments you should discuss your situation with your pawnbroker as soon as you can and before your next payment is due. They’ll be more willing and able to help if you’re proactive and explain your situation.
Make sure you’ve claimed everything you’re entitled to
Make an emergency budget
If you’re worried about cashflow, have a look at what you’re spending and what income you have coming in.
Look at how to cut your household bills, such as switching providers for your gas, electricity or mobile phone contracts.
Find out how to save money and increase income to help you catch up with your payments on the StepChange website.
Many pawnbrokers closed their shops, but they should have made it clear how you could get in touch. Phone lines are very busy now. If you can’t get through, try emailing them or using online contact forms to put your query in writing. This could provide useful evidence later if a problem escalates.
What should I say to my pawnbroker?
You might feel nervous or embarrassed about asking for help, especially if you’ve never had to before. But lots of people are in the same situation, and firms are expecting calls from customers who have seen their income take a hit.
The sooner you get help, the sooner you can get back on track.
Think of the conversation as ongoing, rather than a one-off, until your finances are back on track.
What can my pawnbroker do to help?
If you continue to have money problems as a result of the coronavirus crisis, you may be entitled to extend your payment holiday if it’s in your interests.
Usually, if you borrow up to £75 and can’t repay the loan within 6 months, ownership of the item passes automatically to the pawnbroker. They can then sell it and use the money to pay off your debt. If the loan is for over £100 the pawnbroker has to tell you in advance that they’re going to sell it.
If you can’t repay your loan by the deadline and you don’t want your item to be sold, ask your pawnbroker if they could extend the deadline.
Some pawnbrokers may offer a renewal option. This means you’ll be granted an extension for an agreed period of time, but you’ll continue to pay the interest on the loan and your item will need to be re-pledged.
Any previous payment holiday offered because of coronavirus and later deemed to be unsuitable should have any interest charged during this period waived.
If you don’t contact them, pawnbrokers will normally follow this process:
- they may first ask you to get in touch by writing to you or calling
- they will then usually issue you with a written ‘default notice’. This gives you an opportunity to arrange how to catch up with your missed payments
- if you don’t deal with the debt, the loan will ‘default’. This will usually be after two to three missed payments
- once the loan has ‘defaulted’, more interest and charges could be added – increasing what you owe
- if you still haven’t responded to them, your lender may go to court to seek a County Court judgment (CCJ) (called a decree in Scotland). A CCJ gives your lender more options to enforce repayment of the debt. Bear in mind that these measures can seriously affect your ability to get credit with other lenders in the future
- the debt may eventually be passed to a debt collection agency (also known as bailiffs or sheriff officers).
Next steps if I have missed a payment
If you have missed a payment contact your lender to explain your situation. You should avoid taking out more credit unless you know you can afford to pay it back.
When to get debt advice
If you’ve already missed payments and are not able to come to an agreement with your lender, it’s best to get advice as soon you can, especially if you’ve got other debts as well.
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