Whilst the origins of pawnbroking date back 3,000 years to ancient China, pawnbroking really took off in Britain during the 1800s. The Pawnbrokers Act 1872 was reformed and modernised by the Consumer Credit Act 1974, which regulates all credit agreements of up to £25,000. Pawnbroking took off again during the 1980s and 1990s due to recessions and money problems.
So, just how does a pawnbroker loan work?
A pawnbroker loan works on the simple concept of lending money to a customer based on the provision of collateral, such as jewellery, valuables or electrical appliances. The valuations do tend to be on the conservative-side in order to protect the lender’s interests in the event of loan default.
It offers a quick, easy and relatively cost effective way of getting a loan. If you use a pawnbroker this will involve leaving something valuable that you own with them before they will lend you an agreed sum.
Pawnbrokers pay cash for jewellery, watches, gold, gems, high end or luxury items, electrical goods and many many other items at their discretion. Simply take your items in to the shop, the pawnbroker will have a good look at the item and make an offer of a loan based on the value of the item. Accept their offer of a loan and the Pawnbroker will give you the cash and provide you with a formal, written receipt and will require you to sign the formal agreement. A copy of the agreement will be issued along with the receipt – keep this documentation very safe as you’ll need it to claim back your item. The agreement will say when you have to pay back the money, this is often within 6 months.
Of course, it goes without saying that you will need to pay interest on the loan and it is likely that this interest could be more than that charged by a bank or building society. However, repay the loan plus the interest and the item that you left with the pawnbroker will be given back to you. You will need to provide the receipt at this stage which is why we stress to keep it safe.
Sometimes things do go wrong and if you mislay your receipt you will still be able to reclaim your item but you will need to sign a sworn statement to confirm ownership of the item and the loss of the receipt. If you’ve borrowed more than £25 you will need to have this statement “sworn” by someone in authority such as a solicitor or justice of the peace among others.
If you get into difficulty and can’t afford to repay your loan the pawnbroker is within rights to retain and take ownership of your item. Alternatively the pawnbroker can, at their discretion, renew your loan and issue a new agreement. If the item is valued in excess of £25 and if you can’t (or decide not to) repay the loan or renew it the pawnbroker has the legal right to sell the item and recover the money owed. Legally, the pawned item is yours until it is sold and you can still get it back by paying what you owe including the interest that has built up.
If the item is sold for more than you owe (plus costs) the balance will be refunded to you. If it is sold for less than you owe you then can become liable for this shortfall.
There are some legal formalities that have to be followed to protect the lender. This means that if you have borrowed in excess of £50 the pawnbroker must issue a 14 days formal written notice before the item can be sold. They are required to confirm exactly what the sale price will be plus details of where and how the item is to be sold.
Following on from any sale as outlined above and within a 20 working day deadline the pawnbroker is legally obliged to issue a further written notice informing the borrower of exactly how much the item was sold for and details of any associated costs.
If you have a complaint relating to the money recovered from the sale you are entitled to progress an official complaint via the Small Claims Court.
Nowadays, most reputable Pawnbrokers also operate an online service whereby you can obtain a valuation online, you post the item to them and the money is transferred to you same day – whilst a very easy system it does obviously create a delay.
A pawnbroker does therefore offer a very fast way of obtaining a short term small loan that will not affect your credit score and is not dependent on your credit history and another way to beat the credit crunch.