Pawn to be free of debt ?
CONSIDERING A PAWNBROKER TO MAKE SOME CASH? TRICIA PHILLIPS EXPLAINS HOW IT ALL WORKS
AS THE pandemic leaves many people struggling with money and unable to access loans from high street banks, more people are using pawnbrokers to get by. Here, we explain the basics of what’s involved, how pawnbrokers work and the things you should be wary of when considering using this method to generate cash.
HOW DOES IT WORK?
YOU leave an item with a pawnbroker (known as a pledge) as security for a cash loan.
You’ll be charged interest on the amount you borrow and the rates are not cheap, typically equivalent to around 150% APR.
However, you don’t need to be credit checked to get a pawnbroker loan so they are attractive to people with a bad credit rating.
Once you repay the amount borrowed and the interest charge, the item you pledged as security is returned to you.
WHAT ITEMS ARE ACCEPTED?
MOST pawnbrokers will only accept gold items, jewellery and watches as security against the money lent, but some may also accept items such as laptops, cameras or mobile phones.
HOW MUCH CAN YOU BORROW?
YOU can borrow from £50 upwards, although recent research carried out
by the University of Bristol revealed that 80% of loans are for less than £300. The amount you can borrow will depend on the value of the item you are pledging to support the loan.
WHY ARE PEOPLE TAKING OUT LOANS?
MORE than half of people (59%) use pawnbrokers for day-to-day living expenses such as food shopping, while 14% get a loan to help pay rent, mortgage or other bills, 9% for Christmas or special occasions, and
4% to repay existing credit commitments.
HOW LONG DO YOU HAVE TO REPAY?
THE standard term for a pawnbroking loan is six months, but there’s nothing to prevent you from repaying sooner if you’re able to, thereby saving some interest costs.
However, if you get towards the end of the six months and need more time to repay, you can pay just the interest owed and extend the loan for a maximum of a further six months, still secured by your original pledged item.
WHAT HAPPENS IF YOU CANNOT AFFORD TO REPAY?
IF you are unable to repay the amount you owe, you will forfeit your pledged item which will then be sold by the pawnbroker to cover the outstanding debt.
If there is any surplus left over after the item has been sold and your loan is repaid, the balance will be returned to you.
DON’T PLEDGE ANYTHING YOU’RE NOT PREPARED TO LOSE
MOST pawnbroker loans are secured by pledging jewellery or watches, but if you have an item that has sentimental value, such as something that was inherited from a loved one, think very carefully before putting it up as security as there’s a possibility you could forfeit it in the event you are unable to repay the loan.
John Nichols, chief executive at H&T, the largest pawnbroking company in the UK, said: “We are seeing a steady increase in the number of pawnbroking customers since our stores reopened in May.
“Our customers like the convenience and the transparency of pawnbroking, with only 5% of the ones surveyed in the latest national survey considering pawnbroking to be a high-cost option.
“Pawnbroking is a service that helps people who don’t have access to mainstream credit.
“We work very hard to ensure our customers understand the product we offer.
“This is evidenced in the research, with just 14% of pawnbroking customers not receiving their items back.”