Pawnbroking can either lend a helping hand or slap you with painful debt.
American reality shows Pawn Stars and Hardcore Pawn have rescripted the seedy image of money mongers, attaching a gritty integrity to their reputation, albeit on the small screen.
Down Under, however, there are mixed feelings towards pawnbrokers, not least because some of them are accused of charging exorbitant interest. According to consumer advocacy groups, more protection is needed for vulnerable borrowers who often put personal items in hock indefinitely.
But for those less financially-at-risk, pawning still proves a handy way to get some quick cash, so long as they are confident of being able to repay the loan not too far down the track. In fact, pawnbroking giant Cash Converters offers incentives for customers to repay early.
“Loans redeemed within 14 days attract a discount, making them a great short-term finance option,” a spokesperson for the company told YourLifeChoices.
The broker says it also goes out of its way to make borrowers feel relaxed when they are negotiating.
“At Cash Converters, pawnbroking discussions and loans always take place in a designated area that provides privacy. Our team members will do everything they can to ensure that every customer feels completely comfortable ... we even offer to escort them to their vehicle after they have been provided with the money,” the spokesperson said.
Industry research indicates that the stigma of dealing with over-the-counter lenders could be evaporating. Late last year, IBISWorld reported that pawnbroking revenues had been growing around 3.4 per cent a year since 2012, and were estimated to reach almost $560 million this financial year.
How does pawnbroking work?
Pawnbrokers offer a cash advance secured by personal goods left as collateral. Few questions are asked other than a request for some documents, such as a driver’s licence, to prove your identity and pass a 100-point check. The broker decides how much they will lend depending on the value of the item you wish to hock. They take into account how rare it is, its age and condition, as well as how likely they are to sell it, should the borrower default.
Once you receive the loan, a broker needs to provide you with a ‘pawn ticket’ and written notice of the interest that will be charged in addition to the loan. Items can be reclaimed after you have paid back the cash advance and interest.
If you are unable to repay the amount borrowed on time, sometimes the broker will agree to extend the term of the loan. But the Consumer Action Law Centre (CALC) advises against doing this.
“By extending a pawn broking agreement … people can end up paying huge amounts of interest to avoid having their possession sold, and they risk becoming stuck in a dangerous debt spiral,” CALC senior policy officer Katherine Temple told YourLifeChoices.
Have you ever pawned an item and regretted it? What is your experience with pawnbroking? Did it help to get you out of a financial pickle or did it give you a debt headache?