Uncle's good for a loan

Sainsbury's may be about to become one of the newest lenders, but spare a thought for Uncle who, despite his age and old-fashioned image, is still lending money. In fact, according to the National Pawnbrokers Association, the pawnbroking business is enjoying a steady revival.

The NPA says: "Pawnbroking has successfully shaken off its Dickensian image. The recent upsurge in the industry's fortunes came during the 1980s credit boom and has continued into the 1990s with customers preferring this convenient form of high-street borrowing - customers that banks and building societies turned their backs on during the squeeze."

Contrary to popular belief, pawnbroking is regulated like any other form of credit. The Office of Fair Trading is responsible for granting licences to pawnbrokers. Pawnbrokers' operations are governed by the Consumer Credit Act 1974. It is an offence for a pawnbroker to accept goods from a minor.

John Quigg is a pawnbroker with the north London-based Pledge Company. The company offers loans of varying duration at different rates of interest.

He explains: "We would normally offer a monthly loan of up to pounds 100 secured against a TV or video. Interest is charged at a rate of 10 per cent per week."

Six-monthly loans can be secured at more competitive rates on items such as musical instruments and jewellery. The company will also raise loans against property or share certificates. Recently, Mr Quigg explains, pounds 20,000 was lent to a customer in return for his BMW car as security. The customer was given the option to renew the loan for a further six months at the end of the term.

Borrowing from pawnbrokers can be expensive by conventional standards. Even credit card rates may look cheap by comparison. However, as pawnbrokers are quick to point out, credit can be provided immediately, without the need for any credit checks. When small sums are involved, it can even be more cost-effective to use a pawnbroker than to cash a cheque.

The pawnbroker requires proof of ownership before entering into a loan agreement. When an item is pawned, the customer should receive a receipt and a credit agreement. If you lose the receipt, you should inform the pawnbroker to prevent someone else redeeming the goods.

At the end of the loan period, the borrower will receive a notice explaining that the loan and outstanding interest are now payable. If the loan and the interest are paid, the goods are returned to the borrower. The customer may, however, have the option to renew the loan.

If the borrower does not respond to the notice served, the pawnbroker can take steps to dispose of the goods. The pawnbroker is obliged to give the customer notice of his intention to sell the goods, however, and at that stage the customer's only possible option if he wishes to prevent a sale is to apply to the county court for more time to pay the debt.

Contrary to myth, the pawnbroker cannot simply hold on to the goods, regardless of their value, if the customer does not repay the loan. The pawnbroker, when he decides to sell the goods, is under an obligation to obtain the best price possible. Any surplus, once the loan and accrued interest have been paid, should be returned to the customer.

Many pawnbrokers routinely send the goods to auction to avoid the accusation that they have failed to obtain the best possible price. Meanwhile the customer remains under an obligation to pay interest up until the time the goods are sold.

Mr Quigg says: "Sometimes the pawnbroker loses out in these situations, as the market value of the goods does not always equal the value of the loan and accrued interest. This is particularly true of computer equipment which can, because of constant innovations, lose its value rapidly."

Pawnbrokers are not liable if goods are destroyed or stolen, provided they have taken reasonable care of them.

Mr Quigg says: "All of our valuables are securely stored in vaults." The NPA states that it "safeguards customers' and members' interests with its Customer Protection Plan and Agreed Extra Value insurance schemes for pledged goods".

The NPA sees a bright future for its members. It says: "Pawnbrokers are now moving swiftly and very comfortably alongside high street lending institutions and are providing a service very similar to that offered by banks and building societies but one with which they cannot compete for speed and convenience."

The leaflet "Using a Pawnbroker - Just Another Way of Borrowing Money" is produced by the Office of Fair Trading.

The National Pawnbrokers' Association: 0171- 242-1114