What is A Pawnbroker and How Do They Work?

When you consider doing business with a pawnbroker, you’ll find that you end up having two choices available to you. Either you will be able to leave something valuable at the pawn shop as security for a loan that you would like to take out. For instance, this might be an antique item or a piece of valuable jewelry. Alternatively, you can sell that item to the pawnbroker. Here, we’re going to look at the concept of using a pawnbroker to get a loan. It’s worth remembering that pawnbrokers are useful for some people because they lend out money fast without the need for a credit check. However, they also charge interest rates that are much higher than those at your typical bank.

How Pawnbrokers Work

When you use a pawnbroker, you hand over a valuable item to the person in question and they will value it for you. Your pawnbroker will give you a pre-contract information document which details the information about your credit agreement before the transaction continues. At this time, you will sign an accredit agreement with your broker, and you will have an amount of time in which you’ll need to pay back the loan. The maximum time limit is usually around seven months, but it can often be a lot less.

Your pawnbroker will give you a receipt for your item which you will need to use as proof that you own the item that’s being used as security. Once you have repaid the money that you owe to the broker, you’ll be able to reclaim the item. However, if you don’t repay the loan that you have been given in the term agreed then your broker will be able to sell the item to get the cash that they are owed. Additionally, there’s sometimes a chance to extend the loan if you’re willing to pay interest.

Understanding Pawnbrokers

You should expect to pay a rate of interest with a pawnbroker that is much higher than what you might get from a typical high street bank or building society loan. However, this will often be an amount that’s still lower than the interest rate of a payday lender. You should be quoted a rate of monthly interest; however, the pawnbroker will also need to provide you with an APR or annual percentage rate, which you can use to shop around and find the most competitive interest rates.
One interesting thing to remember about pawnbrokers is that you will usually be able to pay back the full amount that you owe at the end of your agreed term, rather than having to pay it back in regular installments. Additionally, you should be able to pay back whatever you owe early too. If you need an extra amount of time to repay, then the pawnbroker will sometimes be willing to draw up a new agreement for credit. However, it’s important to remember that pawnbrokers can also refuse to give you extra time.

The Benefits and Negatives of Using Pawnbrokers

Perhaps the most obvious benefit of using a pawnbroker is that you won’t have to worry about any credit checks affecting what you can borrow. Additionally, using a pawnbroker is quick and simple, and you should be able to get your hands on the money that you need on the same day that you sign your agreement. What’s more, a pawnbroker will also allow you to redeem your goods at any time that you like, and you’ll only be charged the interest on the time that you have borrowed the money for.

With a pawnbroker, it’s the pawnbroker that takes the risk if the valuation of the item was given was wrong. If the item is sold and doesn’t cover the costs of the debt, that’s not the customer’s fault.

However, using a pawnbroker can also be a very expensive way for some people to borrow money, particularly when you compare this option to other kinds of borrowing. You will usually only be able to borrow a percentage of the value associated with the item that you’re thinking of pawning. This means that if your jewelry, for instance is worth £200, you may only be able to borrow £100, or £50.

If you Can’t Pay Your Pawnbroker

If you’re unable to pay back the money you borrow by the given deadline and you don’t want your item to be sold, then you’re going to need to request that the deadline be extended. However, pawnbrokers don’t have to extend your deadline, so you may find that you have no choice but to let your item go.
Usually, most pawnbrokers will be more likely to give you more time on paying back the amount you owe if you have at least paid off the interest on your last borrowing period.