Whilst the origins of pawnbroking 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. Pawnbroking took off again during the 1980s and 1990s due to recessions and money problems.
How Does a Pawnbroker Loan Work?
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 are No Credit-Check Pawnbroker Loans and Payday Loans Becoming Increasingly 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 pawnbroker loans and Payday loans are becoming increasingly popular with those seeking to borrow money.
No Credit-Check Pawnbroker Loans vs. Payday Loans
Whilst interest rates on no credit-check pawnbroker loans vary, most charge a high APR of 8% per month or £8 per £100 borrowed. Whilst this rate of interest is very high, it compares favourably to Payday loans, which charge £20-25 per £100 borrowed each month.
Although still a high APR, the interest charged on pawnbroker loans is considerably lower. The annualised rate of APR on pawnbroker loans is about 125%. This is because those choosing to borrow money from a pawnbroker need to provide collateral. Payday loans require no collateral at all, which is why the annualised rate of APR is in excess of 1000%.
Failing to pay back the money on a pawnbroker loan 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.
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.
Those that found this article useful may also be interested in reading about the pros and cons of secured loans and avoiding loan sharks. A comparison of secured loans and unsecured loans will help someone decide which is the better option for their own unique personal circumstances.
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