Whilst their origins date back 3,000 years to ancient China, pawnbroking really took off in Britain during the 1800s. The Pawnbrokers Act 1872 was reformed and modernised by the Consumer Credit Act 1974, which regulates all credit agreements of up to £25,000. Pawnbroker loans took off again during the 1980s and 1990s due to recessions and money problems.
How to Get a Loan from a Pawnbroker
A pawnbroker loan works on the simple concept of lending money to a customer based on the provision of collateral, such as jewellery or electrical appliances. The valuations do tend to be on the conservative-side in order to protect the lender's interests in the event of loan default.
Why Credit-Check Pawnbroker Loans and Payday Loans Are So Popular
The UK economy is now officially in recession and increasing numbers of people are struggling with money problems. According to the National Pawnbrokers Association (NPA), there are about 800 pawnbrokers in the UK and this number is set to grow at 10% per annum. No credit-check or bad credit pawn shop loans and Payday cash advance loans are becoming increasingly popular with people who need to borrow money quickly.
Secured Pawn Shop Loans vs Unsecured Payday Cash Loans
Failing to pay back the money on a loan from a pawn shop will result in the source of collateral being sold. However, if a payday loan isn't paid back, bad credit will be registered against the person defaulting on the loan. Loans that are difficult to collect are usually sold on to a debt collection agency.
No Credit-Check Pawnbroker Loans vs Payday Cash Advance Loans
Whilst the rate of interest on no credit check pawnbroker loans varies, most charge an APR of about 8% per month or £8 per £100 borrowed. Although this is still high, it compares favourably to payday cash loans, which charge £20-25 per £100 borrowed each month.
Although still a high APR, the interest charged on gold and silver pawn shop loans is considerably lower. The annualised rate of APR is about 125%. This is because people who choose to borrow money from a pawnbroker need to provide collateral. A payday no credit check loan requires no collateral at all, which is why the annualised rate of APR is in excess of 1000%.
Pros and Cons of a Loan from a Pawnbroker
Provided that someone has the collateral, a no credit-check pawnbroker loan presents a better option than a payday loan. However, estimates on sources of collateral do tend to be on the low side so it isn't wise to use a source of collateral that is important for sentimental reasons. Always avoid borrowing money with bad credit for frivolous purchases.
Sources
"How does a pawn work?" National Pawnbrokers Association (NPA).
"How pawnbroker loans work." National Pawnbrokers Association of the UK.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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