How It Works
"Pawnbroking is driven by the need for instant cash, with outlets operating as 'little banks' providing a service ethic comparable with their High Street competition"
Retail Jeweller, 8 January 1998
Like a bank a pawnbroker earns income on the interest that is charged on the loan secured by a pledged item. In order to accept goods into pawn a pawnbroker makes an on-the-spot valuation of the goods. The customer and the pawnbroker will agree the sum to be advanced and the pawnbroker presents the customer with a completed document (which is basically a version of the original agreement) called 'Pre Contract Information'. The customer having decided to go ahead with the transaction then signs the actual agreement which is an A4 document with details of his rights and protection under the Consumer Credit Act 1974 and the terms and conditions of the loan. The customer also receives as part of the document itself a pawn-receipt for presentation when redeeming the goods.
The agreement is usually (and as a minimum always) for a period of six months and the customer is entitled to redeem property by payment of the original loan plus the monthly amount due at any time during the contract period. When the loan and the interest are paid, the goods are returned to the customer. If the customer has not repaid the loan during this time and the loan was over £75 he will receive notice that the property is due to be sold giving him a further statutory period of 14 days in which to redeem (the customer will normally however have the option at the end of the contract to renew the loan by the payment of interest only and the rewriting of a fresh agreement).
"Around 88% of goods are redeemed - it is not in the pawnbroker's interest for goods not to be redeemed"
Daily Express, 10 April 1996
If the customer does not renew or respond to the notice served, the pawnbroker may take steps to dispose of the goods. Having served the notice of his intention to sell the goods the pawnbroker must obtain the true market value on the date of sale which ensures a fair price is obtained for the customer. Where the proceeds of sale are greater than the amount due to the pawnbroker, the balance is due back to the customer. Contrary to popular myth, only where the loan was for less than £75 (and contract period six months) does the pawnbroker gain title to the goods where the customer has not repaid the loan. Again, contrary to what people may believe, the pawnbroker does not wish to gain title to property as he is in the business of lending money and he wishes far more to see the loan repaid without needing to resort to the sale of property. This way not only is the debt cleared in full but the customer is happy at the return of his goods and he has possession of them to return again at some stage in the future. This is proved by the very high volume of trade that is repeat transactions - nearly always with the same security and very often several times in a few months.
If you were to walk into a pawnbroker's shop today you could be forgiven for thinking that you had just walked into your local bank or building society. Pawnbroking is now a serious alternative to using the services provided by the High Street bank. Customers realise that borrowing money against goods they already own is an affordable alternative to a bank overdraft or other type of loan.
Pawnbroking businesses are on the High Street and are very often jewellery retailers giving them a perfect shop set-up for lending and for keeping goods safely in storage. Consequently, the security that the vast majority of pawnbrokers give loans against is gold, jewellery and watches. This is because they are:
- easy to value
- easy to store
- are a luxury 'can do without' item
- do not perish
- do not generally depreciate
- have an established second-hand market
A pawnbroker will lend from as little as £5 to many thousands of pounds in one easy, quick transaction that requires no credit checks or lengthy meetings or form filling. Short-term cashflow is the reason most people use a pawnbroker, where convenience and speed of service are quite unrivalled. A loan will just as often be obtained for some extra spending money as it will be to clear an outstanding telephone bill. It is flexible, transparent, competitively priced and immediate and it is these factors and its payment terms, which are without early redemption penalties, (unusual amongst other credit), that customers prefer.
