How does a Pawnbroking loan work?
A Pawnbroker lends money short-term (3 to 4 months) against the security of trade-able personal effects. These are primarily jewellery items but include all types of portable personal goods that can readily be sold at public auction or through retail outlets.
The industry is highly regulated and a Pawnbroker is required to be licensed. Trading activity is legally controlled by the Pawnbrokers Act, which protects consumers and specifies the process of pledging and recording of data and customer ID requirements.
Goods pledged are required to be stored until redeemed by the client, by payment of the principle plus interest accrued. If not redeemed then they can be sold by the Pawnbroker to recover the debt amount.
THERE IS NO OBLIGATION TO PAY BACK THE LOAN.
The Pawnbroker also has no recourse to the customer for any money outstanding. It is a non-recourse loan – it does not have to repaid.
Assessing the amount lent on goods is based primarily on the estimated sale price of disposing of items should they not be redeemed. This is often the scrap value for many jewellery items, or and estimate of the second hand sales value obtained from knowledge of recent auction sales, rather than the estimated retail value.