Pawn Loans – How To Obtain It And When It Is Worthwhile
A pawn loan is an uncomplicated way of bridging a short-term financial bottleneck. Pawnshops pay cash for valuables from antiques to zirconia jewellery. The pawn loan is better than its reputation – on average, the middle class makes the most frequent use of it. Many self-employed people who find it difficult to obtain a loan from banks see a pawnbroker’s loan as a convenient way of obtaining short-term funds for investment. But how does a pawnbroker’s loan work and what must be considered in a pawn shop?
What distinguishes a pawn loan?
A pawn loan is one of the oldest forms of loans in the world. The borrower called the pledgor in this loan, deposits a movable object of value in a pawn shop and receives a certain amount of money on loan in return. The bureaucratic effort is negligible. Neither proof of creditworthiness in the form of salary statements or real estate ownership nor an Experian (UK credit investigation agency) information is necessary for a pawn loan.
The pledger receives between 25 and 70 per cent of the value of the goods in cash, which is roughly the price that would be achieved in the event of a sale. Within a period of three months, the pledger can redeem the item on loan. The pawnshop does not acquire ownership rights by paying out the amount of money. As with a classic loan, interest is charged on a pawnbroker’s loan. Up to a sum of 300 GBP, it is one per cent, above that, two per cent. The legislator has stipulated this as well as the fees of 2.50 GBP per month for sums over 100 GBP and 6.50 for a pawn loan over 300 GBP.
A pawn loan is an uncomplicated way of bridging a short-term financial bottleneck.
Forms of the pawn loans
Most pawn shops are reputable, modern businesses that offer a pawn loan instead of goods. The customer has an object of lasting value appraised, receives a pawn ticket and the pawn loan is paid out immediately. The pawnbroker makes his profits from interest and fees, which are set by the legislator in the pawnbroker regulation.
The pawnbroker loan has an old tradition in UK. Already in the year 1650 a pawnshop was opened in Regensburg. The pawnshop always has its own workshop attached to it, in which the valuables of the customers can be appreciated immediately. If there is an agreement, the amount is paid out immediately in cash. The pawn loan is often called “loan of the little man”. Because unlike the normal bank loan, it is sufficient to be in possession of an object of value to receive cash immediately. The identity card is sufficient to establish identity, no further proof is required.
Whoever claims a pawn loan does not incur debts. If the customer does not redeem the pawned item after the agreed period, it will be put up for auction. This result is not important for the givers of a pawn loan. Not only the pawnshop loses money, but also the customer has lost his property. The Britains are exemplary when it comes to redeeming their pawn loan: 93 per cent of the pawners also redeem their valuables.
The online pawn loans
The online pawn loans work like a classic pawn shop. The only difference is that everything is digital. Accepted are usually luxury watches, jewellery, precious stones, precious metals such as gold bars and gold or silver coins. Other valuables such as high-quality smartphones and other consumer electronics can also be submitted for a pawn loan. The customer uploads one or more photos of the object for his credit application.
Using an analysis, experts estimate the value and the customer then receives an offer for a pawn loan. If the customer agrees, the online pawnbroker arranges for the item to be collected by express service or security van. The online pawnbrokers carry out a final check once again and then transfer the amount to the pawner’s account. Most transactions are completed within 24 hours. In the case of unusual valuables, the processing may take a little longer.
Until the pawner releases his valuable object, it is stored in a safe. There is also a pawn ticket in the online pawnbroker’s shop, which is an official contract document. Once the customer has repaid the sum, the object is returned. For a corresponding fee, the periods can be extended beyond the usual three months.
In the meantime, there are online pawnbrokers who have specialized exclusively in cars. The loan is paid, based on the current market value of the vehicle, in full or, if desired, proportionately. The owner can continue to drive the car during this period. As with all business transactions on the Internet, caution is advised with a pawn loan, as there are also black sheep among the providers. It is also advisable to compare the offers of different online pawn shops, which is more time-consuming than going to the nearest pawn shop.
What opportunities and advantages does a pawn loan offer?
Everyone who needs money quickly but does not want to take out a regular loan or is unable to do so due to poor creditworthiness can benefit from a pawn loan. Besides the pawnshops to be found in every big city, loan seekers can also try their luck with online pawnshops.
These are the advantages:
- No credit check: Money against goods brings some advantages over the conventional bank loan. That concerns above all credit-looking for, which have an entry in the Experian or several loans run so that the banks see lacking credit-worthiness. For a pawn loan, no proof of specific receipts of money or other material assets is required. Consumers with a poor score need not have any concerns when they ask for a pawn loan. There is no notification of the pawn loan to the Experian, as it is an Experian-free loan. Also, the guarantors are not necessary. As security the deposited valuable object is sufficient.
- No bureaucracy: filling out forms is not necessary with this type of loan. The pawner receives a borrowing slip and proves his identity by means of an identity card. Further documents are not required.
- Security: Valuables are in good hands in the pawnshop, because they are stored in safes. The pawn ticket given to the pawnbroker is considered an official document. The procedures and fees in a pawnbroker’s shop are legally regulated by the Pawnbroker’s Ordinance.
- Quick transfer: If you decide to take out a pawn loan from an online pawnbroker, you can expect a very short transfer time. As soon as the pawnbroker has accepted the amount, it is instructed – usually on the same day.
- Quick estimation: Valuables such as jewellery, coins and precious metals are quickly and reliably estimated by the experts in the pawnshop. Only in the case of unusual items can a longer time be required.
- Quick payout: If customer and pawnbroker agree, the pawn loan is often paid out in cash within minutes.
- Short maturities: A pawn loan is ideal for all those who need cash quickly but do not want to be tied to long loan periods. The loan usually runs for three months. However, the pawner is free to redeem his valuable object on any day within this period. Nobody has to wait until the end of the maximum term.
- Uncomplicated extension: If repayment does not go as planned, the term can be extended. This requires a new visit to the pawnbroker’s shop, as only the fees and interest accrued so far must be paid.
- Calculable risk: If a loan instalment cannot be paid, this can be unpleasant for a borrower. If the pawn loan is not paid off, the valuable item is put up for auction. The risk of non-payment is exactly calculable for the pledger. If the value of the object at auction exceeds the loan amount, the customer is entitled to have the difference paid out after the loan has been paid off from the proceeds.
What are the risks and disadvantages of a pawn loan?
A pawn loan is flexible and unbureaucratic.
But the system also has some disadvantages:
- High interest rates and fees: A pawnbroker’s loan is comparatively expensive. For a sum of 500 GBP, five GBP in interest and 15 GBP in other fees are due after one month. If the term is extended because the valuable item cannot be released, the interest rate for one year is 48 per cent. Even the regular overdraft facility at the bank is considerably cheaper.
- Rejection: A pawnshop can reject the pawn loan because the object of value is not valuable enough.
- Loss: If the money does not come together to pay off the pawn loan, the valuable item goes to auction and is lost.
- Short term: A pawn loan is only something for people who can pay back a borrowed sum quickly because otherwise, it becomes expensive with interest and fees.
- Too little money: Sometimes the jewellery or painting is not worth as much as expected and a much lower sum is offered for the pawn loan than expected.
- For those who are patient: If you decide to use an online pawnshop, you need patience. Because checking, shipping and receipt of payment on the account take time.
- Small sums: A pawn loan is usually not paid out in four figures or more. Typical are small sums of up to 500 GBP, in exceptional cases even more.
- Misjudgments: Even the best appraiser can be wrong. Therefore, it is advantageous to obtain offers for a pawnbroker’s loan from various pawn shops.
Alternatives to the pawn loan
If you have already taken out many loans, you may not be able to get a loan from your house bank or other providers due to a lack of creditworthiness. In this case, it is possible to take out a loan with the help of a guarantee. Usually, family members or close friends take over. If the loan instalments cannot be paid, the guarantor is also liable.
Many have fallen into debt because of their helpfulness. In the event of a dispute, the surety bond continues to run, which can become a risk if loan instalments are not paid out of wantonness. Cash is often needed quickly to finance a rent deposit. In such cases, a rent guarantee is a good option. The landlord receives a certificate of surety instead of the amount of money. This service costs the tenant a specific fee per year.
To get money quickly, small loans are an optimal possibility. A fixed income of 500 GBP per month is required for a mini loan. Thus, a small loan is also possible for pensioners, people on benefits, students with a permanent part-time job and freelancers.
Similar to the pawn loan, such small loans are approved by specialized companies in a flash when applied for online. Characteristic of small loans is a short term. This is between 30 days and six months. Due to the short terms, the effective annual interest rate is only charged proportionately, which makes small loans particularly attractive. Sums between 100 and 3000 GBP are possible.
Take out a pawn loan: Requirements and procedure
The pawnbroking ordinance regulates the commercial pawnbroking business in the UK legal area. In detail, the regulations are determined about the notification of the trade, the obligation to keep records, form and content of the pawn ticket, the type of storage as well as insurance and realisation of the pawned items. Also, the interest and fees are prescribed by law.
Pawnbrokers are bound by this regulation, otherwise, they are threatened with penalties. A pawnshop requires a permit from the authorities and is subject to their supervision. In a pawnshop, only the rightful owner of a valuable item may take out a pawn loan. Unauthorized pawning the property of third parties is a criminal offence. If you want to pawn someone else’s property, for example, because your grandmother has provided you with jewellery, you need a power of attorney from the owner.
Under what conditions can pawn loans be taken out?
Obtaining a pawn loan is very easy. Customers must first consider whether they want to go to a pawn shop in their place of residence or use the service of an online pawnshop. It is worth comparing offers.
If you have several valuables to choose from, you should have all of them valued so that you can make the best choice. Valid identification papers are sufficient. The procedure is similar for an online pawnbroker’s loan. The only difference is that photos of the valuables are emailed to the pawnshop for appraisal.
This is how a loan is concluded:
- Obtain offers from different pawn shops: Either by personal visit or by sending in photos
- Presentation of the identity card and the valuable object in the pawn office
- Review by the assessor and offer: On average 50 per cent of the resale value
- Signing the pawn contract and handing over the pawn ticket to the customer:
- Payment of interest and fees
- The pledged valuables can be redeemed within three months. If not: extension of the period. New fees will be charged for this. If the pawn loan is not redeemed, the valuable item is put up for auction.
Customers who lose their pawn ticket must report this to the pawnshop. Otherwise, the finder could redeem the item. After communication with the pawnbroker’s shop, it is then possible to redeem the pawn ticket with an identity card.
Tips for dealing with the pawnshop
Whether antiques or gold jewellery – the range of what pawn shops accept is large. More and more people are bringing their smartphones to the pawnshop. In addition, weapons, cars and musical instruments are also accepted. However, technical devices are only accepted if they are in perfect condition. It often happens that objects are rejected, for example, because they are kitsch instead of art. In addition, before going to the pawnshop, it should be thoroughly checked whether a mini loan is the better option.
The pawn ticket should be kept well because it is considered as proof of ownership. If there is no possibility to pay back the pawn loan after the deadline, customers should pay attention to the date of the auction and, if necessary, have a higher difference paid out directly.