Should you ever trust a pawnbroker?
Pawnbrokers' popularity has fallen sharply in the past few weeks, all thanks to Rob Donovan.
If you don't watch Coronation Street, he is the show's resident pawnbroker, who recently pushed fellow Street character Tina McIntyre from some scaffolding, then finished her off with a metal pipe. His gripe? In addition to conducting an affair with the wrong person, Tina was threatening to expose Rob for selling stolen goods through his pawnbroking business.
It's not the first time pawnbrokers or moneylenders have attracted bad publicity. Jesus booted them out of the temple, the Church imposed usury laws to stop the charging of interest on loans, and even Shakespeare had a dig at them, with Polonius telling his son "neither a borrower nor a lender be".
However, in times of need, pawnbrokers have come into their own, used by asset-rich and poor alike. They can even claim to have been instrumental in the discovery of America: in the 15th century, Queen Isabella of Spain pawned the crown jewels to finance an exploratory voyage by Christopher Columbus.
Thanks in part to the recession, the ensuing reluctance of banks to lend to many people who previously would have had no difficulty getting credit and the surge in gold prices between 2011 and 2012, pawnbrokers have staged a revival in the past few years.
Even though gold prices have slumped since 2012 and the market for antique jewellery is weak, there remain more than 2,000 pawnbrokers in the UK and many high streets now include a shop with the distinctive three-ball symbol.
Two developments have helped to increase the attraction of pawning valuables. The first is the advent of high-end pawnbrokers, dealing in status symbol cars, jewels, speed boats, fine wines and art.
It is quite common for this type of pawnbroker to lend tens, and sometimes hundreds of thousands of pounds, to their clients, often as an alternative form of 'bridging loan' required by business owners for short-term corporate deals.
Secondly, pawnbroking has gone online, with some firms even prepared to give an initial no-binding quote based on an uploaded photo of the item to be pawned.
How does it work?
Pawnbrokers offer two options: you can either sell your valuables to them, or use them as security for a loan.
First the item you want to pawn must be valued, either in a pawnbroker's shop for an on-the-spot assessment, or sent in via a secure mail service if you are using an online pawnbroker.
A huge range of items can be pawned, from mobile phones and electrical goods to cars, boats and endowment policies - even designer clothes and accessories. But the items most commonly finding their way to pawnbrokers are jewellery and watches. Do not be surprised if your jewellery is weighed – gold is often valued purely by its weight because it's likely to be melted down if you don't redeem your loan.
The broker should then give you a 'pre-contract information document', which contains the terms of the credit agreement. Provided you agree with the terms, you'll sign a credit agreement and be given a period of time in which to pay back the loan. This can range from 30 days to seven months.
The broker will provide you with a receipt that you will need to hand over when you come to claim your goods. You have a 14-day cooling-off period during which you can withdraw from the agreement.
Will I get a good deal?
Pawnbrokers charge interest at a rate that is considerably higher than that charged by a high street bank for a personal loan or authorised overdraft but much less than other forms of quick cash, such as a payday lender or an unauthorised overdraft. You will be quoted a monthly interest rate, although you should also be shown the APR so you can compare it to other forms of lending.
You can expect to pay anything from 5% to 12% a month. This interest is normally paid back in one go at the end of the loan, rather than in monthly instalments. If you redeem your item early, you will only pay interest for the period that you have actually borrowed money.
Failure to repay
If you can't repay the loan in the agreed period, what happens next depends on how much you borrowed. If the loan was worth less than £75, the item will belong automatically to the pawnbroker.
If you borrowed more than £75, the pawnbroker can sell the item but you still maintain an interest, so if the pawnbroker manages to sell your item for more money than you owe, including the interest, you must be given any money left over – although you will have to ask for this.
If you borrowed more than £100, the pawnbroker has to tell you in advance that he plans to sell the item to give you a chance of paying him off and getting your possession back. Provided you can pay the interest due, the pawnbroker should be wiling to extend the loan term.
Pros and cons
The biggest advantage for many people who use pawnbrokers is there is no credit check. It makes no difference to the pawnbroker if you have the worst
credit record: you are handing over physical items as security for a loan worth less than their value.
It's also incredibly quick. Provided the amount you are borrowing is not large, you will probably leave the shop with cash in your hand within minutes of the deal being struck. If the transaction is online, money is usually paid into your account within 24 hours of signing your agreement.
However, pawning valuables is an expensive way to borrow: online pawnbroker Funding Secure charges 55.7% APR for a £1,000 loan over six months, while Borro charges 90% APR for a loan on the same terms.
The amount you can borrow on the back of an item you hold dear may also prove disappointing. The loan offered will be a fraction of the true value and will also reflect how easy the pawnbroker thinks the item would be to sell on.
Funding Secure provides loans worth between 40% and 70% of the market value of the asset but high street pawnbrokers are likely to lend you even less. Be sure to shop around, not only for the lowest interest rate but also for the biggest loan.
Pawnbrokers are regulated by the Financial Conduct Authority and you can check their authorisation on the FCA website. Choose one that belongs to the National Pawnbrokers Association, which operates its own code of conduct.
If you feel you have been treated unfairly by your pawnbroker, try talking the problem through. If that doesn't work, set out your complaint in writing. If the pawnbroker fails to respond or the answer is not satisfactory, you can take your complaint to the Financial Ombudsman Service.
James Constantino says his firm, Prestige, is a pawnbroker with a difference.
The firm, based in Surrey, deals in 'playthings of the super-rich'– from helicopters and Lamborghinis to Chanel handbags and silver elephants.
"It can have the potential to be absolutely life changing," says Constantino. The stories of the people selling and pawning their high-ticket valuable to Prestige are so compelling they have inspired a Channel 4 series, Posh Pawn.
This shows the very different reasons why people find pawnbrokers a convenient and sometimes vital way to raise cash. Although they own valuable assets, some are no less desperate than customers of lower-end pawnbrokers.
I watch as Prestige handles a series of customers in very different situations.
Jeremy, for example, made his fortune in finance and sold his business to pursue his dream of a career in music. However, the career failed to materialise and after living off the proceeds of the business sale for more than a decade, he and his family have now run out of cash and their home is about to be repossessed.
His children suggest the sensible course of action would be to move into a smaller property and for Jeremy and his partner to both get jobs. But Jeremy dismisses this advice: "I would rather live in a coffin."
Instead, the former businessman hopes to pawn some of his vintage cars but, as Constantino points out, "it's all about condition and service history".
Jeremy's cars don't look like they've been serviced in years - all have flat batteries and boast a fair bit of rust. Jeremy pawns his much loved Steinway piano and one of the cars, a Mustang, raising £26,000 - just enough to keep the wolves from the door.
In a completely different position is Carol, a single mother with two sons, who has unearthed a diamond ring given to her by an ex-boyfriend 20 years ago. The diamond is a whopper – at least five carats.
Carol appears to have no sentimental attachment to the ring and wants to raise money to take her sons on holiday. Lawrence, the broker assessing her ring, seeks advice from a jewellery specialist and comes back with an offer of £90,000. Carol is clearly stunned. "I can't believe I've come into that kind of money," she says. "It will change things for me - I won't have another 20 years on my mortgage."
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
People who have bought a property before they’re able sell their existing property often have to take out a bridging loan, a temporary short-term loan to “bridge” a gap in finances. Because bridging loans are made available very quickly, and because they are short-term loans, borrowers are charged higher rates of interest by the lenders.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.
The period of time you’re allowed, after signing an agreement, to cancel it without incurring a financial penalty. Financial products including banking, credit, insurance, personal pensions and investments are subject to a 14-day cooling-off period (this is 30 days in the case of life insurance and personal pensions). The insurer or broker must refund any money paid by you within 30 days, although it has the right to deduct a reasonable admin charge, and a sum proportionate to the number of days’ cover you had. If you have any related credit agreements, these will also be cancelled.