IF money is tight, you may have considered pawning something valuable.
It can be jewelry, a watch or a handbag.
The cost of living crisis has seen a boom in pawnbroking – where money is made available in exchange for something of value which, if repayment is not met, can be sold.
But experts warn that loans are expensive, and if you can’t repay the debt, you could lose something of sentimental value.
This week, Sun Money investigates these loans and provides advice on affordable alternatives.
YOU could end up paying back hundreds of pounds in interest. Three of the UK’s largest pawnbrokers, Cash Converters, Ramsdens and H&T, charge between 118.8% and 119.9% annually.
This means that if you take out a loan of £500 over six months, you will have to repay £299 in interest or £799 in total, at a rate of 119.9%.
The loans are much more expensive than those from the big banks, but cheaper than payday loans.
Many quote a monthly or daily interest rate, but they must also state 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. Sometimes you have to repay the loan in one installment.
A spokesperson for H&T said: “We serve customers who are unable to raise funds in the traditional bank credit system, or who need a low value short-term loan to meet a need immediate funding.”
Pawnbrokers do not perform credit checks. This can be an advantage if you have bad credit, but it means there is no collateral to ensure you can afford the loan.
Debt adviser Sara Williams of Debt Camel said: ‘Some people find they are repurchasing an item but it has left them with so much money they have to pawn it again in a few weeks.
“A one-time convenience can turn into a long-lasting nightmare, especially if you pawn jewelry with sentimental value.”
A spokesman for the Financial Conduct Authority said: ‘We have reformed the market to help borrowers avoid getting into debt and have been clear with lenders about the need to support customers in times of difficulty.
“We will take action if companies fail to meet their obligations.”
IF YOU DO NOT REPAY THE LOAN
If you repay on time, you can get the pawned item back. But you must keep the receipt.
If you lose it and the item is over £75, you will have to pay a fee to have a magistrate or commissioner for oaths 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 you are confident in your ability to repay.
If your item is resold, you should receive all the extra money the pawnbroker receives – on top of what was offered to you.
James adds: “In the past, pawnbrokers have failed to reunite customers with this extra money.
“So if you’re pawning something and it’s sold, check how much it sold for and find out what money is owed to you.”
If you need to borrow money, consider other options. Remember that emergency credit should only be used in extreme circumstances, such as to pay a priority bill or if your car breaks down.
If you have a low income or bad credit, you may find it difficult to qualify for the higher loan rates. This is why affordable alternatives are important.
First, try to get some free money in the form of grants. If you are on benefits, talk to your work coach about the Household Support Fund. Or ask your local council if they can help you.
Or Jane Tully of MoneyAdviceTrust, suggests, “Credit unions often offer a range of affordable products at cheaper rates and there’s a cap on how much interest they can charge.”
If you’re having trouble paying a bill, talk to your provider.
Use Turn2Us to search for grants or talk 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 you buy home essentials. Iceland is giving 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.