Pawnbroking is quite simply a loan secured on an item of value. Traditionally pawnbrokers would accept almost anything of value in order to secure the loan. The H&T pawnbroking offer is mainly based on jewellery as it is compact, high value and can be valued and if necessary resold relatively easily.
How does it work? The customer brings in the item(s) of value to the store and is asked to give an indication of how much they want to borrow. This is done in order to establish how realistic the customer’s expectation is, as the high margins charged by the high street jewellers can give an inflated perception of the value of the goods. The store staff then use a combination of their expertise and training, together with the point of sale system to determine if there is adequate security for the loan. Assuming that there is, the customer and H&T then enter into a credit agreement regulated by the Consumer Credit Act. This is a contract for 6 months and carries interest of 8% to 10% flat rate per month. The rate charged is dependent on local competition and the location of the store.
- Redeem the agreement – This means they pay H&T the value of the loan, plus the interest accrued to date; or
- Renew the agreement – This means they pay H&T the interest only and a new loan agreement is issued for a further six months.
Approximately five months after the date of the loan we will write to the customer explaining that the contract is almost due and reminding them of the final date to redeem. We write again once the contract is expired to give the customer one more chance to redeem or renew their pledge.
If the customer does not redeem or renew then we have to attempt to realise the value of the pledge to repay the loan.
The Consumer Credit Act sets out a different treatment for pledges over £75 and those £75 and under.
- Over £75 – These pledges are sent to public auction with a reserve price. In the event that the pledge is sold then H&T retains the value of the loan, interest to date plus a small administration fee. Any surplus is repaid to the customer
- Under £75 – These pledges become the property of H&T immediately; the rules relating to the surplus do not apply due to the lower value of the items concerned.
Regardless of the outcome H&T does not pursue the customer in the rare circumstances when there is a shortfall between the amount due under the agreement and the amount recovered when the item is sold. Therefore if the customer is unable to redeem there will be no further consequences and their credit rating is unaffected.