Pawnbroking Explained
Pawnbroking began a long time ago. It has been in existence for at least 2000 years with its origins in China, Greece and the Roman Empire. It has come a long way since then and the image of a rather grim, seedy establishment has disappeared. It is now a very respectable and professionally run business led by the National Pawnbrokers Association of the UK (NPA). The role of a pawnbroker is to enable anyone to borrow a relatively small amount of money for a short period of time. There are no credit checks but you must leave something valuable (the pawn) as security and a credit agreement must be signed and you will be given a receipt. You get the item back when you pay the full amount owed including interest as outlined in the agreement. The normal period is up to 6 months but the pawnbroker may agree to a longer period.
If you cannot pay by the deadline and the amount is £75 or less the pawnbroker will keep the item. If it is more than £75 then the pawnbroker can sell the item. You still own the item until it is sold and you can still redeem it by paying the amount owed including all the interest. If you do not want the item sold you can negotiate with the pawnbroker for a new, extended agreement. If the item is sold for an amount that does not cover the loan the pawnbroker will seek the balance from you. If it fetches more than is owed the pawnbroker must give the balance to you.
Pawnbrokers now offer a wide variety of services. These include payday-loans, cheque cashing services, unsecured loans, and car log book loans, where an amount can be borrowed using the vehicle as security.
The Annual Percentage Interest Rate (APR) offered by a pawnbroker can be staggeringly high. A typical example would be a loan of £100 for one month with £110 repayable. This is nearly 300% APR. The advice of the NPA is to "borrow a small amount for a short period of time". Some pawnbrokers offer Sale and Buy Back. You would sell the item to the pawnbrokers and then buy it back at a higher price, within a short, specified time. You can also arrange to pay in instalments, in what is known as a 'set aside' or 'lay by' scheme).
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