What is a Pawnbroker?
A pawnbroker is a firm that will offer cash loans to people in exchange for collateral. If you need cash now you can take something valuable that you own down to your local pawnbroker such as gold jewellery and the pawnbroker will lend you money against the jewellery.
The customer will then repay the pawnbroker a set sum over an agreed period of time around 3 to 6 months after which when the loan is completely repaid the can reclaim the jewellery or whatever item they put forward as collateral.
The loan offered is not for 100% of the item price, normally the pawnbroker will assess the value of the item and loan up to 60% per the items price in the form of a short-term loan.
Unlike a payday loan the interest rate which a pawnbroker charges is lower than that offered by direct payday lenders. It is common to see interest rates of around 7% to 10% per month. The customer can choose to repay the loan in instalments each month plus interest or they can repay early including any interest and reclaim the item. If the customer is unable to repay the loan, then the pawnbroker will sell the item to cover the cost of the loan. They may or may not offer the customer excess cash they may have gotten from the sale of the item.
Are pawnbrokers a good way to getting cash now, how do they compare to payday loans?
Who Uses Pawnbrokers in the UK?
The National Pawnbrokers Association state that their statistics show more women than men use pawnbrokers with the most common age group being between 25 and 40 years of age and less than 4% of the UK population use pawnbrokers. When pawnbrokers are mentioned in conversation, people assume that only the poorest in our society use them or the unemployed. This is not always the case. In the same way that it is not typical for poverty-stricken or unemployed people apply for payday loans. If a borrower does not have an income, then they may not be able to repay the loan. In this case it would be better for them to simply sell the item on eBay than pawn it at 60% of its value.
What items can be Pawned
In theory any item with value can be pawned, it all depends on the pawnbroker and whether they believe they could sell the item if the borrower was to default on a loan. The most common item which people tend to bring into pawnshops would be jewellery, but people have taken works of art, cars, designer items. If the pawnbroker believes they can resell the item and can determine the value, then they will most probably accept it as a pledge for the loan.
Things Likely to be Pledged to a Pawnbroker
- Precious metals
- Diamonds and gems
- Power tools
- Smart Phones
- Games consoles
If you need cash now for an emergency expense you can apply now for a short-term loan if you do not want to part with sentimental item.
Are Pawnbrokers the same as Payday Loan Direct Lenders?
They are sort of similar in the sense that both pawnbrokers and payday loan firms offer loans for relatively small sums of money for short period of time. The major differences are that with a pawnbroker you must put up some sort of collateral. This would be considered a secured loan whereas a payday loan direct lender does not require any security and is therefore an unsecure loan. Both pawnbrokers and payday lenders help people who need cash now to get access to money when they really need it.
The other major difference between the two is that with a pawnbroker you must physically visit them at their premises and take your item of value with you, whereas a with a payday lender you can apply for your loan 100% online.
Pawnbrokers do not always perform a credit check since they have the collateral to cover the loan plus the additional value of the item.
Payday loans are designed to be repaid when the borrower is next paid over within 30 days, although payday loans can also be repaid over a longer period such as a few months.
What are the disadvantages of pawnbrokers?
We would have to say that the main disadvantage of pawnbrokers has to be the potential loss of an item of great sentimental value. Most people tend to pawn items of jewellery such as engagement rings or wedding rings. The value of these items is worth more than their monetary value which they might receive from the pawnbroker who will tend to lend between 50% and 60% of the item value.
With a payday loan you do not have to put up any thing of value let alone sentimental value. The only advantage of going to the pawnbroker is that the interest rate will be lower that those offered by payday lenders.
Which are better? Pawnbrokers or Payday loan direct lenders
If you need cash now and you have items of value that have no sentimental value, then going down to your local pawnbrokers might be an option but you will only get between 50% to 60% percent of the item resell value. If you were to take in a games console worth £200 on eBay then you will only receive £100. If you need more than that you will need to find other items to pawn.
Payday loans on the other hand will give you the ability to borrow more than £100 and you will not have to hand over your games console in the process. Payday loans are not as expensive as the media has made them out to be. The Financial Conduct Authority has placed a cap of 0.8% daily interest on all payday loans.
Payday loans offer a much more flexible form of financing than the pawnbroker which limits you to getting a loan based on a percentage of the items true cost. Although with a pawnbroker there is normally no credit check to determine if you can afford to repay the loan. In this respect if you have poor credit and need a loan and you have already been turned down by payday lenders then maybe the pawnbroker is the next best option.
In conclusion are pawnbrokers still a viable option for people seeking to get an instant loan for a relative small amount of money, the answer is yes, if you have an item of value and you do not mind if you have to give it up for a few weeks or month or potentially forever then these firms provide a service.