Pawnbroking in UK - A guide to " How It Works & What To Expect ""

[Paul]

Inspired by another thread today, someone needing quick cash, i thought i would put together this small guide to how pawnbroking works in the UK in case anyone is ever in a sticky jam, and needs cash quick same-day and how you can use your gold to make it happen.  Hope nobody ever needs it but it is here to help  

• Pawnbrokers – How do they work ?

When you approach a pawnbroker you have two choices

1. Either to leave something valuable as security for a £ loan, for example, an asset such as a gold coin, jewellery or an antique,

or

2. Sell the item to the pawnbroker  

This info below explains the first option.

Pawnbrokers can lend money quickly BUT charge higher % rates of interest than high street banks/credit cards/overdrafts.

• What are Pawnbrokers?

You hand over the item (known as a pawn or pledge) to the pawnbroker who will value it for you. 

With the likes of a 1oz gold coin for example, it is easy to know the current market value of your item ie just look what spot price of gold is

The pawnbroker should give you a ‘Pre-contract Credit Information form’ if you are a new customer

A reputable Pawnbroker is very likely to ask you for valid ID (passport/driving license) and address proofs (utility bill/bank/council tax statement) to verify your identity/address

if you’ve borrowed from the pawnbroker in the last 3 years, you can ask for this (and it’s always best to do so).

Once valued, and loan amount agreed

You’ll be given a "Credit Agreement" to sign - check this carefully and ask questions if you don’t understand anything. Be sure the APR % you will be paying is visible

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). APR on the loan will vary accordingly, shorter period expect a higher APR,
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 back what you owe + the accrued interest and getting the item back. The pawn broker will most likely have a minimum amount of interest to be paid (i.e. x1 month)

If you don’t repay the loan during the redemption period, the pawnbroker can sell it to recover the lent cash.

!!! 100% ALWAYS ALWAYS ALWAYS - KEEP YOUR CREDIT AGREEMENT & PLEDGE RECEIPT - AS IT IS 100% ESSENTIAL FOR THE REDEEMING OF YOUR GOODS !!!

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.

Visit the National Pawnbroker’s Association’s website
http://www.thenpa.com/

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

You can expect to pay a pawnbroker a rate of APR % interest that is more than a high street bank loan/credit card cash advance/overdraft, but normally a lot less than a payday loan company (Wonga.QuickQuid,Sunny etc) or door stop lender (ie Provident) or even worse yet local loan shark

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).

A daily rate may used to make it look less % just x by 365

and monthly rate x by 12 to check the APR's figures both tally up.

Shop around to find the most competitive rates. An APR rate of 70% - 125% is typical

You’ll usually repay the loan in one payment, rather than in instalments. ( ie once you have the borrow amount & interest on contract)

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, before drawing up another extended agreement.

• 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.

For the purposes of this forum gold coins are perfect items to pawn as they are easily priced/valued against current market rate of gold spot price

• Pawnbrokers – the pros

If you have a poor credit rating it might be easier to borrow from a pawnbroker than another lender, as the value of the item determines what you can borrow, not your previous borrowing/payment history

No credit checks are done, no personal judgements are made on you. A pawnbroker, wants and values your business as it pays his wages.  
It’s a quick service – normally you will have your money the same day.  Payment is most often wanted in hard cash
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 is an expensive way to borrow. Compared to traditional borrowing like credit cards/overdrafts/personal loans.  
You can only borrow a percentage of the value of the item you want to pawn. So if, for example, you have a 1oz gold coin worth £1,000, you might only be able to borrow £600 against it.  You will never be offered full current market value

• 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.
http://www.financial-ombudsman.org.uk/consumer/complaints.htm

Hope this helps anyone who might be in a temporary financial pickle  

[Pipers]

Thanks for the info Paul.  

I have used a Pawn Broker in the past for small amounts using gold.  I must of got good rates as i remember 45% APR  though as you said gold coins are easy money for a pawn broker.  Also I knew what the coins were worth to a bullion dealer and agreed what the % below spot the sale price would be if i failed to pay back the loan. 

The main thing is only take out a pawn if you are able to pay it back.  Sell if you are unsure if you could pay the loan back do not pawn. A pawn broker can be a good place to sell certain items and its quick.       

[Lr103]

I thought this was interesting, and I enjoyed learning about how this business works, so thank you for taking the time to share it!

The one thing that stood out to me, was that unless I missing something (could very well be the case 😊), it would seem that given such high interest rates, assuming one has a gold coin to pawn, it would be a better deal to sell it and then buy it back in the future, rather than borrow against it and then pay back a loan.  Even with the frictional costs such as dealer spreads and postage, it would take an enormous move in spot to make up for the cost of interest.  And that's not even accounting for the possibility of gold declining during the time you need the cash.

[Paul]

12 hours ago, Lr103 said:

it would seem that given such high interest rates, assuming one has a gold coin to pawn, it would be a better deal to sell it and then buy it back in the future, rather than borrow against it and then pay back a loan.  

in most cases you are right, best just to sell to a bullion dealer

[Pipers]

14 hours ago, Lr103 said:

I thought this was interesting, and I enjoyed learning about how this business works, so thank you for taking the time to share it!

The one thing that stood out to me, was that unless I missing something (could very well be the case 😊), it would seem that given such high interest rates, assuming one has a gold coin to pawn, it would be a better deal to sell it and then buy it back in the future, rather than borrow against it and then pay back a loan.  Even with the frictional costs such as dealer spreads and postage, it would take an enormous move in spot to make up for the cost of interest.  And that's not even accounting for the possibility of gold declining during the time you need the cash.

You get hard cash quickly outside the banking system, if you need cash then the pawnbroker is the way to go! You then could get stock to sell quickly to make money in business! 

[Paul]

Using a pawn broker will also not leave any lasting traces on your credit profile.  You are not credit searched prior to being accepted for credit

It doesn't get reported to Experian,  Equifax and TransUnion (formerally CallCredit) credit agencies.

The credit agreement you have is solely with the pawnbroker. It is baked in the cake equation, if you don't pay your loan back plus interest, the pawnbroker takes ownership of your item.

It has been reported on the likes of Money Saving Expert web site, that people have made use of Pay Day Loans in their credit history past has had negative affects on them when they have made application for mortgages, as in the lenders eyes a Pay Day Loan is not a sensible way to manage your finances, when applications have reached the underwriters & scrutiny stage

https://www.moneysavingexpert.com/loans/payday-loans/