What Is a Pawnbroker and How Do They Work?

What is a pawnbroker

If you’ve never used a pawnbroker before, here’s everything you need to know.

History of Pawnbroking

While many people might assume that pawnbroking is a fairly recent concept, it has actually been in existence for hundreds of years. Indeed, researchers have found that the people of Ancient China used the basic principles of pawnbroking some 3,000 years ago.

It’s thought that William the Conqueror first brought pawnbroking to England back in 1050, with the practice of pawning jewels for cash also becoming popular with many kings and queens.

These days, pawnbrokers are still very much alive and thriving on the high street, making it one of the oldest trades known to humankind.

What Is a Pawnbroker?

Despite pawnbroking’s long history, there’s often still a great deal of confusion about what a pawnbroker is all about. Essentially, a pawnbroker lends cash for an item that someone hands over, or pawns, as security for the loan. The item is then returned to the owner once the cash loan, and interest, has been repaid.

A pawnbroker also sells items to customers that they have kept when a customer cannot repay their loan. They also buy items from customers directly, which they then sell on.

How Does Pawnbroking Work?

Pawnbrokers operate from a physical or online store. They work by lending cash to people who pawn valuable items in return, which are held as security for the loan.

Pawnbrokers lend money in exchange for items

A pawnbroker decides how much money to lend a person based on the estimated value of the pawned item. This means the pawnbroker needs to have a good deal of knowledge about how much various items are worth. In most cases, the pawnbroker will be able to provide an instant valuation, but for rare or unusual items, they might take a bit longer to research their market worth. Usually, you should be able to obtain the loan within 24 hours or less.

The pawnbroker agrees on a value and terms and conditions, with the customer to repay the loan, together with interest (typically around 3-10%), over a set period of time. You’ll be asked to sign a contract form, which details the terms of the loan and the repayment plan. Most loan periods are around six months long, although this can vary to suit your needs. Payments are usually made in full at the end of the loan period rather than in instalments. You may be able to pay the loan off earlier than stated on the contract if you’re able.

You’ll also be given a receipt which you’ll use to reclaim your item once the loan has been paid off.

The pawnbroker keeps hold of the pawned item during the loan period until the loan has been paid off. The pawnbroker cannot sell the item during this time, as the item still officially belongs to its owner.

If the person who has pawned the item cannot pay the money back, the pawnbroker takes ownership of the item and can then resell it to recover the cost of the loan. However, they are legally obliged to keep hold of it for six months before selling it. A pawnbroker doesn’t need to give you any notice of their intention to sell the item if the loan value was less than £100. If the value were over £100, however, they would need to let you know.

If the pawnbroker sells your item and the sale doesn’t cover the loan’s value, you’ll be obliged to pay the outstanding amount. On the other hand, any surplus profit from the sale will be given back to the owner.

It’s usually in the pawnbroker’s interest to return the item to the owner, as they tend to make more money from the loan’s interest than reselling an item. Therefore, the pawnbroker aims to negotiate terms that are as favourable for the customer as possible, to increase the likelihood of repaying the loan.

Why Use a Pawnbroker?

There are many reasons why someone might choose to use a pawnbroker rather than try to obtain a loan from other means, such as using a bank.

For starters, using a pawnbroker means you can get your hands on cash instantly without having to wait for any loan applications to go through. All you need is proof of identification and the item you’re hoping to pawn, sometimes with its proof of purchase.

Using a pawnbroker is useful if you need to get your hands on some money quickly, such as to tide you over until you get paid or if any unexpected expenses crop up.

Another reason that people may decide to use a pawnbroker is that they don’t carry out any credit checks. So, if you have a poor credit rating and have been refused credit elsewhere, this is an option that suits many people in this situation.

Although you’ll have to pay interest on the money that you borrow from a pawnbroker, this isn’t necessarily as unaffordable an option as you might initially believe. Since the loan is usually just for a short period of time, the repayments are often more affordable than a payday loan. In some cases, you might even be able to get a discount for paying the loan back earlier than arranged.

Contrary to what you might think, a pawnbroker wants customers to pay their loan off and reunite them with their pawned item. To help achieve this, the pawnbroker works out a payment schedule that suits each individual the best according to their needs. This makes this kind of arrangement a very flexible one.

Many people also turn to a pawnbroker to raise much-needed funds, as it’s far safer and less risky than using important assets, such as their property, as collateral. This means that if you can’t afford to pay the pawnbroker back, the only item you’ll lose is that which you’ve pawned. So you don’t need to worry about debt collectors coming to ransack your property or a bank reclaiming your home. Crucially, failure to repay your pawn debt won’t have any impact on your credit score.

Pawnbrokers don't use credit checks

Which Kinds of People Use a Pawnbroker?

There’s often the assumption that most people who use a pawnbroker are down-and-outs in the lower realms of society. But this isn’t the case at all. All sorts of people turn to a pawnbroker when they have immediate cash flow problems, even if they own expensive non-liquid assets such as jewellery. In fact, the average pawnshop punter is someone who is employed and normally has a steady income. With over 2.5 million Brits using a pawnshop every year, this covers a wide cross-section of the overall population. Essentially, using a pawn shop is just another alternative way to obtain an instant loan.

What Can You Pawn?

People can pawn all sorts of things of value that have the potential to be re-sold, beginning with items worth as little as £5 up to many thousands of pounds and more.

People would pawn their Sunday best clothing for cash to see them through the week in times gone by. But, these days, typical items to pawn include jewellery, watches, gold, diamonds, handbags and accessories, furniture, designer clothing, works of art, antiques, rare coins, electrical goods, fine wines, cars and even speedboats.

More unusual items that have come into the possession of pawnbrokers over the years include prosthetic limbs, cattle, a glass eye, wigs and bodily fluids of VIPs.

Some pawnbrokers operate within a niche area, such as jewellery, but most tend to cover all items.

Can You Pawn More Than One Item?

Anyone can pawn as many items as they want at any one time to increase the value needed as security for a loan. It’s also not uncommon for people to use a pawnbroker more than once throughout the year.

How Does a Pawnbroker Value an Item?

A pawnbroker will painstakingly inspect an item to work out its resale value, as well as assess its condition, taking into account any damage, faults or worn areas. They’ll also look for serial numbers, and scrutinise any supporting documentation, to determine an item’s authenticity.

Pawnbrokers will also work out the value based on demand and supply. As a result, you’ll achieve a higher value, for instance, if your item is rare or sought-after.

The cash loan that you receive is typically around 50-60% of the item’s value.

Is It Safe to Use a Pawnbroker?

Pawnbroking is subject to stringent regulations, so you don’t need to worry about whether pawnshops are safe to use or not. In fact, many pawnbrokers are family-run businesses that have had a presence on the high street for many years.

Reassuringly, pawnbroking is regulated by the Financial Conduct Authority. This means that customers should get a fair and honest deal from pawnbrokers. If you feel you’ve been ripped off, you can take your case to the Financial Ombudsman Service.

Additionally, pawnbroking is subject to the Consumer Credit Act 1974. When you carry out a transaction with a pawnbroker, they’re obliged under the Act to provide you with a receipt. This will show all the charges that apply to the transaction, including interest rates and credit amount, and the redemption date. You’ll also be supplied with the terms and conditions of the loan, including your rights and protection. This normally means that you’re given a 14-day cooling-off period if you change your mind about the transaction. By following the stringent codes of conduct and regulations, also ensures that pawnbrokers aren’t in business to sell knock-off or fake gear.

Although these regulations give consumers confidence in using a pawnbroker, it’s still important that you choose carefully when deciding who to use. While the vast majority of pawnbroking businesses are legitimate, like any sector, rogue traders can operate.

How to Choose the Right Pawnbroker?

With any transaction or purchase that you make, choosing the right retailer is important – and pawnbroking is no different. So whether you’re looking to pawn an item of jewellery or purchase a second-hand watch from a pawnshop, do your research beforehand and choose a reputable provider.

If you’re looking to pawn a niche product, especially if it’s valuable or rare, consider using a broker with specialist knowledge in this area. Always have a rough idea of how much your item is worth. Similarly, if you’re purchasing a pawnshop, research typical sale prices.

There are some simple checks that you can make. For example, make sure the pawnshop you choose is fully licensed to operate and works within the regulations. You can get added reassurance by choosing a retailer who is a member of a relevant trade body, such as the National Pawnbrokers Association. Finally, look online to check reviews that people have given about a particular pawnshop to gauge their reputation – this is especially important if you decide to use an online pawnbroker.

It’s easier to understand what a pawnbroker is like by visiting a store in person. This allows you to ask questions and get a feel for the customer service you receive. If you choose an online pawnbroker, it’s also worth considering if they have a bricks-and-mortar store that you can visit to check it out. Alternatively, call up the online store and fire away with the questions to get an idea of what kind of company you’re dealing with. If you feel that the pawnbroker doesn’t answer your questions fully, or isn’t helpful, then move on to someone else. In particular, a pawnshop should be fully transparent about its fees and charges, especially if it offers any introductory discounts.

When sending valuable items to an online pawnshop, always choose a secure delivery method and get the item insured.

You should also feel confident that your pawned item will be kept safe and secure during the loan period so that it doesn’t get damaged, lost or stolen. Most good pawnbrokers will keep items in a vault, safe or glass case, for instance. So if a pawnbroker shuts during the loan period, your items will still be kept safe, and you should still be able to retrieve them.

It’s reassuring to know that 95% of those who use a pawnbroker are satisfied with the experience they’ve received, so providing you’ve done your homework, you should happily fall into this category.

What Happens If You Can’t Pay the Pawnbroker Back?

If you find that you’re struggling to repay the loan to the pawnbroker within the given timeframe, the first thing you should do is talk to them. They might be able to offer you an extension, for instance, and provide payment reminders.

In the worst-case scenario, the pawnbroker will keep the item you’ve pawned if you can’t pay them back. They can then try to sell it on.

If you dont repay the pawnbroker will keep your item

While this might sound drastic, especially if you’ve pawned a cherished family heirloom that you’re keen to redeem, it’s reassuring to know that in nine-out-of-ten cases, customers are in a position to repay their loan and claim their possession back.

What Happens If You Lose the Receipt for Your Pawned Item?

You’ll need to fill out a standard form if you lose the receipt for your pawned item and you borrowed up to £75. For anything over £75, you’ll need to sign a statutory declaration, which could involve swearing an oath that the item was yours.