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Published 13 November 2023
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What are Pawnbrokers and How do They Work?

Pawnbrokers offer short-term loans secured against the value of an item. The pawnbroker will keep hold of the item until you repay the loan, or sell the item if you fail to pay off the loan.

Pawnbrokers allow you to borrow money in return for letting them hold a valuable personal item that you own as security for the loan.

While a pawnbroker may be a relatively quick and convenient way to get a loan, you might face high interest rates compared to other forms of borrowing, and it may not always be the best choice for your circumstances.

Read on to learn more about how a pawnbroker works and some of the alternative borrowing options you could consider.

At a glance:

  • Pawnbrokers offer loans that are secured against a valuable item you own, such as jewellery.
  • You leave the item at the pawnbrokers for the agreed period and, once you’ve repaid the loan (plus interest), you get your item back.
  • Loans from pawnbrokers often have high interest rates, and you risk losing your goods if you don’t repay the required amount within the agreed timeframe.

What is a pawnbroker?

A pawnbroker, or a pawn shop, is a type of loan provider that offers short-term secured loans based on the value of an item that you leave with them as collateral. This item is referred to as a pledge or pawn.

You may see physical pawn shops on the high street, but they operate online too.

How do pawnbroker loans work?

Pawnbrokers will usually lend a percentage of the total value of the item you pledge. You’ll also need to agree to a loan term during which the pawnbroker can’t sell your item. During this time, you’re allowed to get your property back if you repay the loan in full plus the interest you’re charged.

Loan terms will typically last at least six months, but you might decide it should be longer or shorter.

What can you pawn?

This can vary between pawnbrokers, but it’s possible you might be allowed to pawn anything that has a resale value. Some of the items most commonly accepted include:

  • jewellery
  • watches
  • precious metals
  • electronics
  • cars
  • antiques

What do pawnbrokers charge?

Pawn shop loans often charge a higher rate of interest than personal loans and some other types of credit. However, they are likely to be cheaper than payday loans and other high-cost, short-term credit options.

Pawn shops must show the annual percentage rate, or APR, that you’ll be charged, to make it easier to compare rates between pawn brokers.

How do pawn shops work?

The process of getting a pawnbroker loan can differ slightly depending on whether you go to a high street store or use a pawnbroker online.

High street pawnbrokers

If you want to pawn an item in person in exchange for a loan, this is typically how the process works.

  • You take the item you want to use as security to a pawn shop. They will value it and tell you how much they are willing to lend you.
  • If you agree and you’re a new customer, you should be given a ‘pre-contract credit information’ form. You may not get a form if you’re a returning customer, but you can still ask for one.
  • The pawnbroker may ask for ID to confirm your identity, and you must be at least 18 years old.
  • You will need to read and sign a credit agreement, which will tell you how much interest you’ll pay and how long the loan term is.
  • You will receive a ticket or receipt that proves you own the item being used as security. You’ll need to keep this safe, so you can hand it in and get your item back when you repay the loan.
  • For the pawnbroker to return your item, you’ll need to show your ticket and pay off the loan in full before the end of the period specified in the agreement. You will typically pay off the loan in one repayment, although it may sometimes be possible to pay in weekly or monthly instalments.

Online pawn shops

If you use an online pawnbroker instead of going into a high street store, the general process is likely to be similar, but there will be a few differences.

  • You will need to fill in your personal details and information online about the item you want to pawn.
  • Based on this information, the pawnbroker will provide you with an initial quote.
  • If you’re happy with the quote and want to proceed, you will then need to send your item to the pawnbroker.
  • The pawnbroker should say how they want you to send the item, by a courier or tracked delivery service, for example. Pawnbrokers may cover the cost of delivery and insurance.
  • Once the pawnbroker has your item, they will check and value it to give you a final loan offer.
  • If you accept the offer, the pawnbroker will send you the money. Otherwise, they will arrange to return the item to you.

Even though it may take longer for you to receive the loan if you use an online pawnbroker, it does allow you to compare different providers and choose the one that offers the best deal.

How do repayments work?

You typically repay a pawn shop loan, including interest, in one lump sum. However, some pawnbrokers may allow you to pay it back in instalments.

Your credit agreement will say when you need to pay back the loan in order to receive your item.

Loan terms will often be a minimum of six months, but it’s worth double-checking as these can vary.

You can repay your loan any time before the deadline to get your item back.

What if I can’t repay a pawn shop loan?

If you can’t pay back a pawn shop loan before the deadline, you may be able to ask the pawnbroker for an extension. To extend the loan, you will normally need to pay the interest you owe at the very least and repledge the item as security.

If you can’t come to an agreement with the pawnbroker and you don’t repay the loan by the deadline, the pawnbroker can then sell the item you put forward as security.

Here, the exact details of what happens will depend on the amount you borrowed.

  • Loans of £75 and under: the pawnbroker will automatically own the item and is able to sell it.
  • Loans over £75: the pawnbroker is able to sell the item, but they have to get the best price they can. If there is money left over from the sale after the debt and other costs are deducted, the pawnbroker needs to pay this to you.

Bear in mind that loans will be a percentage of an item’s value, so a loan of £75 will be secured against an item worth more than this. For example, if the loan is 50% of the value of the item, for a £75 loan, the total value of the item sold would be around £150.

Pawnbrokers have to keep your item for a minimum of six months before they can sell it.

If you borrowed more than £100, the pawnbroker needs to contact you before they can sell your item, to give you a further 14 days to pay off the loan and get the item back.

What happens if you lose the ticket?

If you misplace the ticket or receipt that proves an item is yours and you borrowed £75 or less, you can return to the pawn shop and request a standard form, which you fill in to confirm the item is yours.

If a pawnbroker refuses to accept a standard form (because they don’t think the goods are yours) or for loans over £75, you would need to pay to get a statutory declaration. In England, Wales and Northern Ireland, this could mean going to a magistrate or Commissioner for Oaths, while in Scotland, you might need to contact a Justice of the Peace. This process may involve a fee.

Pros and cons of pawnbrokers

Getting a loan from a pawnbroker has some advantages, but it’s important to consider the potential disadvantages too.

Advantages of pawnbrokers

  • Pawnbrokers don’t tend to run any credit checks, which can make it easier for people with poorer credit scores to borrow money.
  • You can typically arrange a loan on the same day if you go to a local pawn shop. If you use an online pawnbroker, it is likely to take longer.
  • You can normally pay back the loan at any time before the deadline and only pay interest for the period you borrowed the money for.
  • You can borrow a small or large amount of money, depending on the value of your item and how much you need.

Disadvantages of pawnbrokers

  • Pawn shop loans can come with high interest rates compared to other forms of borrowing, making it a relatively expensive way to borrow.
  • Pawnbrokers won’t lend you the full value of the item you use as security, so you may not get as much money as you expect. You are almost certain to get more money by selling the item, although this would mean you lose the item for good.
  • If you lose the ticket or receipt that you need to claim back your item, it can be difficult to prove ownership, particularly if you borrowed more than £75.
  • You risk losing the item if you can’t pay back the loan.

Pawn shop rules and regulations in the UK

Pawnbrokers are regulated by the Financial Conduct Authority (FCA), so before choosing a firm, always see if they are listed on the FCA’s register. Complaints about pawnbrokers can also be taken to the Financial Ombudsman Service if the pawn shop in question fails to respond to your grievance or the issue isn’t satisfactorily settled within eight weeks.

You should also check if the pawnbroker you plan to use is a member of the National Pawnbrokers Association (NPA). The NPA is a trade body that sets rules that all its members are expected to follow to ensure they maintain high standards and treat customers fairly.

Alternatives to pawn shop loans

Getting a loan from a pawnbroker can be an expensive option. As a result, it’s always worth considering alternative sources of finance to see if there is a more suitable way to take out a loan.

Personal loan

If you need to borrow money, you could see if you are eligible for a personal loan. These are unsecured, which means you wouldn’t need to put forward any property as security, and you typically repay them in monthly instalments.

The interest rates on these loans depend on your credit score and overall financial situation. Lenders will run a credit check and affordability assessment to help them decide whether to offer you a loan and, if so, at what rate.

The best rates will go to those with the best credit scores. However, there are specialist loans for bad credit that could be an option if your credit score is less than perfect.

You can find loans from a range of online lenders and banks, as well as credit unions.

Bear in mind that there is typically a minimum loan amount set by lenders, so personal loans may not be the best option if you only need to borrow a small sum of money.

Family and friends

If you have any family or close friends with some money to spare, you could consider asking them for a loan. Whether this is a viable option will depend on their financial situation and your relationship with them, but it could be a way to borrow money without paying any interest.

If you do borrow from a friend or family member, make sure you agree the terms of the loan, including how and when you will repay it, to avoid any potential disagreements later on. It may also be worth putting this in writing.

Make sure you only borrow from people you know and trust. Be wary if an acquaintance you haven’t known for very long offers to lend you money, even if they seem genuine, as they could be a loan shark.

» MORE: Borrowing money from friends and family

Credit card

Credit cards can have high interest rates, but they could still be a more affordable way to borrow than a pawn-shop loan if you use them effectively.

Some credit cards offer a limited interest-free period, which means you can use them to borrow money without paying any interest. However, you need to make sure you stay within the credit limit and make the minimum payments, as well as clearing your credit card balance before the 0% period ends.

If you don’t manage to pay off your card before the 0% rate ends, you will need to pay interest on your outstanding card balance.

Do you need financial help?

If your finances are tight, particularly with the high cost of living, you may be considering a loan from a pawnbroker.

However, if you’re struggling with your living expenses and any existing debt, taking out a new loan may not be the best idea. Borrowing money that you can’t afford to repay could make your situation worse and, if you get a pawn-shop loan, you may not be able to pay off the loan to get your property back.

If you’re finding it hard to pay off any existing debt or to afford your living costs, then it’s worth asking for help from organisations such as Citizens Advice and StepChange.

They can offer free advice on your situation and help you to work out the best approach to take. Even though it can be hard to admit you’re struggling and to ask for help, getting advice sooner rather than later can stop your financial difficulties from getting worse.

» MORE: Where to get debt help

Image source: Getty Images

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