I’m thinking of taking my jewellery to a pawnshop so I can borrow money from them. What exactly is a pawnbroker?
Pawnshops or pawnbrokers lend money to people who leave their goods in the shop as security. If the borrower doesn’t repay the loan (plus interest and any fees) – this is called redeeming the pawned goods - then the pawnbroker can sell the goods to recover the debt. It is an option for people who need to borrow money but aren’t able to borrow from elsewhere, for example because of a poor credit history.
Pawnbrokers must be licenced and have to follow certain procedures. Pawnbrokers can charge interest on their loans but are not allowed to charge any fees or other charges. In practice this usually means that the interest charges are much higher than in other types of credit contracts because it has to cover storage costs, administration costs and so on.
In a pawnbroking transaction, the borrower (that’s you) is called the “pledger”. The contract you sign which has all the details of the transaction is called a “pledge certificate” and your copy of these details is recorded on a “pledge ticket”. When you repay your loan (plus any interest) and get your goods back you are said to have “redeemed” your goods.
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What do I need to know about getting a loan from a pawnbroker?
The main law which covers pawnbroking transactions is the Secondhand Dealers and Pawnbrokers Act (SDPA). Under the SDPA the pawnbroker must give you a “pledge ticket” which states:
- your name,
- the address where you can retrieve your goods,
- a description of the goods,
- the amount of money they lend you,
- the amount of interest they will charge,
- the total amount you will pay on the redemption date (the date you have to finish paying back the loan) and whether the amount is smaller if you pay it back before the redemption date.
It must also include a summary of your rights and of the pawnbroker’s obligations under the SDPA.
For the duration of the pledge, you have the right to see the goods or to have the pawnbroker operate the goods (e.g. if the pawned goods are electronic devices) but you don’t have the right to handle the goods yourself.
If you don’t repay your loan by the redemption date, the pawnbroker is entitled to sell your goods to recoup their debt. They have to try to sell it by auction first and only sell it by other means if it doesn’t sell at auction. If the sale price is more than the amount of your debt, the pawnbroker must try to contact you and refund you at least 90% of the extra amount, if you do not claim it within six months then the pawnbroker can keep it.
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How is a loan from a pawnbroker different from other types of consumer credit?
Although a loan from a pawnbroker is a type of consumer credit contract, pawnbroking transactions are treated slightly different by the law compared to other types of consumer credit contract.
Pawnbroking transactions entered into before 6 June 2015 are covered by the Credit Contracts and Consumer Finance Act (CCCFA) e.g. regarding disclosure, cancellation rights, fees, hardship .
For pawnbroking transactions made on or after 6 June 2015, the Credit Contracts and Consumer Finance Act (CCCFA) only applies in relation to the lender responsibility principles and oppression.
For example the pawnbroker must make reasonable enquiries to ensure that the loan is appropriate for your needs and that you will be able to make your repayments without suffering substantial hardship. The pawnbroker must also ensure that the loan is not oppressive, for example they should not pressure you into entering an agreement to borrow without helping you to make an information decision and giving you time to consider the information.