IF cash is tight, you might have considered pawning an item of value.
It could perhaps be jewellery, a watch or a handbag.
1
The cost-of-living crisis has seen a boom in pawnbroking loans — where money is made available in exchange for a valuable item which, if repayment is not met, may be sold.
But experts warn that loans are expensive and if you can’t service the debt you could lose a possession of sentimental value.
This week Sun Money investigates these loans and provides advice on affordable alternatives.
EXPENSIVE RATES
YOU could end up paying back hundreds of pounds in interest. Three of the UK’s biggest pawnbrokers, Cash Converters, Ramsdens and H&T, charge between 118.8 per cent and 119.9 per cent per year.
This means if you took out a loan for £500 over six months you would have to pay back £299 in interest or £799 in total, at a rate of 119.9 per cent.
The loans are far pricier than those from high street banks, but cheaper than payday loans.
Many quote a monthly or daily interest rate but they should also show the annual rate.
Often you can only borrow a percentage of an item. For example, if your ring was worth £200, you might only be able to borrow £100. You sometimes have to repay the loan in a single payment.
An H&T spokesperson said: “We serve customers who are not able to raise funds in the traditional banking credit system, or who need a small-value, short-term loan to meet an immediate funding need.”
Most read in The Sun
AFFORDABILITY FEARS
PAWNBROKERS don’t perform credit checks. This can be an advantage if you’ve got a poor credit score but it means there are no safeguards to make sure you can afford the loan.
Debt adviser Sara Williams, of Debt Camel, said: “Some people find they redeem an item but that has left them so short of money they are forced to pawn it again in a few weeks.
“A one-time convenience can turn into a long-running nightmare, especially if you are pawning jewellery with sentimental value.”
An Financial Conduct Authority spokesperson said: “We have reformed the market to help borrowers avoid getting into a spiral of debt and have been clear with lenders concerning the need to support customers if they are struggling.
“We will take action if firms don’t meet their obligations.”
IF YOU DON’T REPAY LOAN
IF you make repayments on time, you’ll be able to get the pawned item back. But you must keep the receipt.
If you lose it and the item is over £75, you’d have to pay a fee to get a magistrate or commissioner of oaths to swear the goods are yours. If you can’t repay the loan, the item is sold.
James Daley, of Fairer Finance, said: “Avoid pawning any item with high sentimental value unless confident in your ability to repay.”
If your item does get resold, you should get sent any extra money the pawnbroker gets — above what you were offered for it.
James adds: “In the past, pawn-brokers have been poor at reuniting customers with this extra cash.
“So if you pawn something and it does get sold on, check what it sold for and chase down cash you are owed.”
AFFORDABLE ALTERNATIVES
IF you need to borrow money, look at alternative options. Remember, emergency credit should only be used in extreme circumstances, maybe to pay a priority bill or if your car breaks down.
If you’re on a low income or have a poor credit score, you may struggle to qualify for the top high-street loan rates. That’s why affordable alternatives are important.
First, try to obtain free cash in the form of grants. If on benefits, speak to your work coach about the Household Support Fund. Or ask your local council if they can help.
Or Jane Tully of the MoneyAdviceTrust, suggests: “Credit unions often offer a range of affordable products at cheaper rates and there is a cap on the amount of interest they can charge.”
If having trouble paying a bill, speak to your provider.
Use Turn2Us to search for grants or speak to End Furniture Poverty, if you need furniture or a new fridge-freezer, for example.
Responsible lenders like Fair For You offer lower-cost loans to help buy home essentials. Iceland does interest-free micro loans of £75, in the form of a pre-loaded card to spend at the supermarket.
You can seek free debt advice from Citizens Advice, StepChange or National Debtline.
