What is pawning?

Pawning is just another way of borrowing money. You leave something valuable (the pawn) as security with a pawnbroker and you receive a loan. When you can pay the money back, plus interest, the pawnbroker returns your goods. If you don't repay the money, the pawnbroker can sell the item you pawned.

Pawnbrokers can lend all amounts of money, from about a fiver to thousands of pounds. Although most things can be pawned, items tend to be jewellery, watches and gold (because they are easy to store and resell). It's a good way of getting some cash quickly, especially if it's difficult to get elsewhere. But the interest rates they charge are often sky high - well over 100% APR in some cases.

Finding a pawnbroker

Pawnbrokers can be found in most towns - often attached to jewellery shops. The National Pawnbroking Association website can help you find your nearest pawnbroker. Pawnbrokers must have a consumer credit licence, standard documents must be used and strict procedures followed.

Making the agreement

The process for getting something pawned is pretty simple:

• Firstly, you allow the pawnbroker to examine what you have to pawn and they'll give you a value.
• If you agree on the value, you will be asked to sign a credit agreement. You must be given your own copy.
• You leave the pawned item with them. In exchange, you will be given a pawn-receipt. In most cases the credit agreement and the pawn-receipt are combined in one document. You'll need to keep this, as it's proof that you own the item.

Getting the item back

You can get your item back at any time by returning your pawn-receipt and paying what you owe under the agreement. This is known as redeeming.

You normally have six months in which to do this, although the pawnbroker may agree to a longer period. A pawnbroker can refuse to redeem a pawn only if there is good reason, for example, if you do not present your pawn-receipt, or the pawn-receipt does not belong to you and you do not have the borrower's permission to redeem the pawn.

In England, Wales and Northern Ireland you may be entitled to compensation if the pawnbroker keeps your pawn without good reason. In Scotland, if a pawn is unreasonably retained, stolen or obtained by fraud, the courts can order it to be returned to the owner.

If you lose your pawn receipt

Tell the pawnbroker so that no one else will be able to use your receipt. To get your goods back, you'll have to sign a statement that you have lost your pawn-receipt. If the amount borrowed is over £75, you need to sign the statement in front of one of the following:

• Commissioner for Oaths
• Justice of the Peace (magistrate)
• Notary Public

A solicitor can do this as well, but they may charge a fee.

Extra time to pay

If you cannot redeem your item and you do not want your pawn to be sold, the pawnbroker may agree to renew your loan. You will usually be asked to pay the interest that has built up. You must be given another agreement.

If you cannot redeem

For items valued at £75 or less

If you cannot pay what you owe by the deadline and the amount you borrowed was £75 or less, the pawnbroker takes ownership of the item and can sell it to recoup the debt.

For items valued at more than £75

If you borrowed more than £75 the pawnbroker is entitled to sell the pawn, but it remains your property until it is sold. The loan remains outstanding and interest will continue to be charged.

If the pawnbroker decides to sell the pawn you can still redeem it until it's sold. You must be given 14 days written notice before the sale goes ahead. The notice should state the asking price for the item and give details of when, how and where it will be sold.

Legally, if the item fetches more than you owe under your agreement, including the sale costs, the surplus belongs to you. However, you will have to claim it. On the other hand, if the pawn is sold for less than you owe, you will be liable to pay the difference.

If you're unhappy with the price

If you think that the pawn could have been sold for a better price or that the sale costs are unreasonable, raise the matter with the pawnbroker. Bear in mind that the second-hand value of goods, even jewellery, is generally much less than an insurance valuation and the price paid when new. Also, if the pawn was sold at public auction, the price obtained will normally be deemed fair for legal purposes, however low it may be.

If you remain dissatisfied, you can challenge the pawnbroker in court using the small claims court.

If you are uncertain about anything to do with your pawn agreement, you can get advice from your local Citizens Advice Bureau, law centre or Trading Standards Department of your local authority.

Updated: 09/01/2013