Pawn broking
Thinking of using a pawnbroker to borrow money? Find out how it works, what you will have to pay, and what your rights are before you sign a credit agreement.
You can go to a pawnbroker for a loan, but you will have to leave something valuable (the pawn) as security. You may have to pay more interest on the loan than you would to a bank or building society.
The pawnbroker will ask you to sign a credit agreement. Do not sign unless you understand all the conditions.
The pawnbroker will also give you a pawn-receipt which will either be separate or will be contained within the credit agreement. Keep it – it proves you own the item.
Normally, you get your item back (redeem it) by handing over your pawn-receipt and paying what you owe under the agreement. You normally have six months to redeem an item, but the pawnbroker may agree to a longer period when you make the agreement.
If you cannot pay what you owe by the deadline, and you borrowed £75 or less, the pawnbroker will keep your pawn.
If you borrowed more than £75, the pawnbroker can sell the pawn to recover the debt you owe. (The pawn is yours until it is sold and you can still redeem it by paying what you owe including the interest that has built up.)
If you cannot pay what you owe by the deadline, the pawnbroker may keep or sell the item.
Some pawnbrokers also offer 'sale and buy-back' schemes.
Disadvantages of using a pawnbroker
You may have to pay more interest on the loan than you would to a bank or building society.
If you lose your pawn-receipt, the pawnbroker can refuse to give the pawn back.
If you cannot pay what you owe and the pawnbroker sells the pawn, it may be sold for less than you thought it was worth. And if it fetches less than you owe on the loan, you will have to pay the difference.
If you cannot pay what you owe and the pawnbroker sells the pawn, it may be sold for less than you thought it was worth. And if it fetches less than you owe on the loan, you will have to pay the difference.
If you cannot pay what you owe, and you do not want the item to be sold, the pawnbroker may agree to renew your loan. You will usually be asked to pay the interest that has built up on the loan when you renew. The pawnbroker must give you another agreement (a 'modifying agreement') when you renew a loan.
If your pawn sells for more than you owe, you will not automatically receive the difference – you may have to ask the pawnbroker for it. But the pawnbroker is legally obliged to pay over the surplus.
If you lose your pawn-receipt, tell the pawnbroker so no-one else can use it. The pawnbroker can refuse to give the pawn back but you may be able to get it back by paying what you owe and signing a statement that you have lost your pawn-receipt and that you are the owner. If you borrowed more than £75, you will have to get the statement witnessed by a Commissioner for Oaths, Justice of the Peace or Notary Public. You can also use a local solicitor, but you may have to pay a fee.
If you think the price the pawn fetched was too low or the sale costs too high, speak to the pawnbroker.
If you are still not satisfied, you can take the pawnbroker to a small claims court. It is informal and easy to use: you do not have to go to a solicitor. The pawnbroker will have to prove the price was fair and the sale costs reasonable but it is a good idea for you to obtain evidence showing why this was not the case.
But remember that the secondhand value of goods, even jewellery, is generally much less than the price of new items and less than what they may be insured for. And if the pawn was sold in a public auction, the courts are likely to consider the price it fetched fair, however low this may be.
- If you are unhappy with a pawn broker's service, see Know your rights - Pawn broking for more information.
Some lenders (including some pawnbrokers) offer 'sale and buy-back' schemes. You sell an item to the lender and can then buy it back at a higher price within a short period of time. It is also possible to arrange with the lender to buy the item back in instalments (often called a 'set aside' or 'lay by' scheme).
However, you do not have the same rights and protection under these schemes as you do with pawning.
