Pawn broking is on rise due to financial crisis

Financial crisis has encapsulated the whole market. The people are neck deep in debt. They opt for debt settlement services to come out of the labyrinth of debt. They pawn their gold ornament in order to meet the demands of the creditors. The economic downturn is solely responsible for the business of the pawn brokers to flourish.

What is meant by the term pawn broker?

Conventionally the pawn brokers are those people who give loans to the borrowers against any security deposit of land property or valuable possession like gold. The borrower can retrieve all the security deposit once the loan is repaid. But there are many pawn brokers who are taking the advantage of the high price of gold and is selling off the customer's valued possession.

The borrower gets aware of selling off their possession from the on-line auctions. They know that if they sell their valuable things then they would be able to raise money. In this way they would be able to pay off the loans without incurring further debt.

The pawn broker gives money against a security deposit and on the repayment of the loan the borrower can discharge the possession from the lender. The item which is kept as a security deposit is evaluated and then an interest rate is fixed accordingly. Most pawn brokers charge 3 to 5 % Annual Percentage Rate (APR) per month. The people are keen to take up loans from the pawn broker as the interest rate is comparatively lower than that of payday loans.

The tenure of borrowing can be extended but if one fails to do this, his valued possession would be sold off. The pawn broker doesn’t get much benefit out of it. His main intention is to roll the money and get the interest amount.

If the security deposit is sold off then the customer doesn’t lose much as the pawn broker takes only the amount which was loaned out with additional interest charge. And the surplus money is returned to the customer.

Basically the pawn brokers are from the buy back shops

Pawnbrokers are distinct from high street buy-back shops such as Cash Converters, where a customer will sell an item with the option to buy it back 28 days later. If the customer doesn't repurchase the item, it goes into the shop to be sold (items are not usually limited to gold and jewelery; they can be electrical goods as well, for example).

Pawnbrokers are regulated alongside banks and other lenders by the Consumer Credit Act 1974. Borrowing through a pawnbroker may not be suitable for everyone and high interest rates mean it is not a long-term solution, as they themselves acknowledge, but sometimes it can resolve short-term cash flow problems.

FURTHER INFORMATION

Under the Consumer Credit Act, the pawnbroker must give the customer a receipt detailing the date on which the redemption period ends, the amount of credit secured by the pledge, and the interest rate, as well as information about other charges individual lenders may apply.

In case, you have taken a loan from a pawn broker, try not to lose your pledge receipt. If you do so, inform your pawnbroker immediately so that nobody else can present it.