A pawnbroker is a lender that offers loans to those that find it difficult to obtain credit via other, more usual means such as loans or overdrafts from banks or building societies. The establishments where pawnbrokers operate are known as pawn shops.
What is a Pawnbroker?
A pawnbroker is a person or organisation that offers to lend money to borrowers who give the pawnbroker one or more items to hold as collateral for the debt. In other words, loans from pawnbrokers are secured loans, albeit of a basic type.
When someone borrows from a pawnbroker, the first step is to take the item they are pawning in for valuation. The pawnbroker will then examine the item to give a valuation, which will then be the basis for any credit agreement.
At this stage the pawnbroker is likely to take measures to ensure the item is not stolen, as receiving stolen goods is a continuing problem for pawnbrokers. This is likely to involve the borrower having to prove his or her identity, and possibly the pawnbroker checking the item against any lists of known stolen items. It is also likely that the pawnbroker will be required to notify the local authorities of the item pawned, and then to keep it for a certain period of time before selling to allow the police the check it against any lists of stolen property they maintain.
After the pawnbroker has valued the item, he or she will offer a deal to the borrower. This deal will include the amount of money the pawn broker is willing to lend the borrower for the item, and the amount of money which must be repaid if the borrower wishes to reclaim the item. This latter amount is determined by the amount of money loaned plus loan charges (which will include interest, and could include administration fees).
If the borrower and pawnbroker agree a price, then the pawnbroker takes the item and gives the borrower the money. After this, there is a period for which the lender has to hold on to the item, during which the borrower has the chance to reclaim it: this can be done by repaying the amount owed and accompanying charges, with the possibility of early repayment fees. If the borrower does not reclaim the item by the agreed date, then the pawnbroker has the option of selling it. The selling price is usually enough to cover the money lent, any charges, and a profit.
In recent years, a number of online pawnbrokers have appeared. These companies attempt to replicate the service offered by high street pawnbrokers, but without a pawn shop for customers to use. Instead, valuations are done online or over the phone, with the borrower giving a description of the item they are selling. If the item turns out to be not as described, however, the loan is likely to be cancelled.
Problems with Using Pawnbrokers
Though pawnbrokers can offer a convenient service, there can be some problems with their use. Pawnbroker loans are often a higher interest rate than with standard loans from banks, building societies, credit unions or similar lenders. This means users of pawnbrokers can get into unmanageable debt more easily.
Also, pawnbroker loans are secured loans, which means that if the borrower does not repay their loan on time they are highly likely to lose the item they have pawned.
Given these issues, it is advisable for anyone considering using a pawnbroker to seek advice, especially if they are struggling with debt. Free debt advice is available from a number of government bodies and independent charities; all of them will give help with effective debt management.