South East

Pawnbroking first became commonplace in Britain in the 13th Century when Franciscan friars set up pawnshops to help the poor.

But as is the case today, it wasn't just the poor who visited pawnbrokers.

People from all walks of life were customers of pawnshops.

Queen Isabella of Spain is reputed to have pawned her jewels to raise money for Christopher Columbus's expedition which led him to discover the Americas.

In more recent history the pawnbroker has been the credit source of choice for people unable to borrow elsewhere.

In the East End "Uncle" - the Cockney nickname for a pawnbroker - has for many years been a familiar member of the community.

The nursery rhyme Pop Goes the Weasel is actually a 17th Century song originating in the City of London about pawning - "popping" - goods.

Depending on which historian you believe, the "weasel" was the name of a hatmaker's tool, a silkmaker's bobbin, or a coat (from "weasel and stoat" in Cockney rhyming slang).

Today's pawnbroking

Today pawnbroking is making a comeback, as loans from the banks become harder to come by.

Annie Shaw is a financial agony aunt who writes for CashQuestions.com which is a question and answer service for consumers run by financial journalists and a panel of independent experts.

Here is her overview of how pawnbroking works as well as her tips on debt advice...

How pawnbroking works...

When you pledge an item, you will usually receive only a fraction of its worth to reflect the pawnbroker's risk and his storage and administration costs.

Annie Shaw - financial agony aunt.

The amount you will be required to pay back may represent a very high rate of interest. While borrowing in this way may be convenient, it does not represent good value if you can borrow more cheaply elsewhere.

Worse still, if you lose the pawnbroker's receipt for your pledge, he can refuse to give you the item back.

You normally have six months to redeem your pledge, but the pawnbroker may agree to a longer period.

If you don't redeem your pledge on time, the pawnbroker can decide to extend the loan or keep or sell the item, depending on how much you borrowed.

If you borrowed £75 or less, the pawnbroker can keep your pawn. If you borrowed more than £75, the pawnbroker can sell the pawn to recover the debt.

If he sells it for more than you owe, he must give you the difference - but only if you ask for it. If there is a shortfall you must still pay him the difference between what you owe and the proceeds of the sale.

Because of the risk of obtaining poor value from a pawnbroker, if you no longer want a particular item it might be better to try to sell it yourself, rather than to pawn it and allow the pawnbroker to sell it.

Payday loans

Taking out a payday loan works in a similar way to using a pawnbroker.

The difference is that instead of pledging an item of value to obtain cash, you either give the lender a post-dated cheque for the loan plus an interest charge, or sign a direct debit mandate so that the lender can get his money from your bank account when your wages are paid.

If you can't afford to repay the loan when it falls due, more charges will be applied.

The huge interest rate will keep rolling and if you still don't pay, the lender will take you to court.

The high rate of interest and additional charges - the annual percentage charge can reach 2,000% - which means that the debt can soon balloon to unmanageable proportions.

Consolidation loans

Consolidation loans are often offered as a debt solution, but can end up costing more in total interest than other types of borrowing and can put your home at risk.

While consolidation loans can be useful, you need to take care.
Always check the total cost of the loan and not just the monthly repayments.

Extending a loan over a longer period may seem attractive, but it can trap you in debt and cost you far more than if you rearranged your finances over a shorter timescale, or sought a debt management plan.

Be particularly wary of loans that use your house as security, because if you fail to make payments you could lose your home.

NEVER switch unsecured debt, such as credit card debt or a personal loan, for secured debt - which is a loan secured against your home - however attractive the interest rate looks.

Getting help

While using a pawnbroker or payday loan may be a useful one-off service in an emergency, anyone who needs to do this on a regular basis, or is not managing to pay debts when they fall due, should seek debt advice.

The credit crunch has caused people from all social strata to seek debt advice, and there is no stigma attached to it.

In fact it is a brave and intelligent thing to do, because it can stop you getting into deeper trouble.

Pawnbroking - emergency lifeline?

A debt adviser may be able to help you and your creditors to agree terms that could mean you don't have to pay all the money that you owe, or could give you more time to pay.

This means you may be able to stop worrying about debt, and no longer fear being pursued by people to whom you owe money.

While many debt management companies advertise their services in newspapers, on leaflets pushed through the door or on television, it is often hard to know which one to choose.

The debt management business is not regulated like other financial services, and there are many poor practitioners who will charge you money and give a bad deal.

Free help

You should not be paying for debt help. The best thing to do is to contact one of the debt charities. These give their services completely free of charge.

The major ones are:

Consumer Credit Counselling Service - freephone 0800 138 1111 - 8am to 8pm Monday to Friday.

National Debtline - 0808 808 4000 - Monday - Friday 9am-9pm. Saturday 9.30am-1pm.

Payplan Freephone - 0800 917 7823 - 8am - 9pm.

Citizens Advice - more details of bureaux near you can be found in your local phone book.

If you have a question about your finances post it on CashQuestions.com.

This is a totally free and unbiased question and answer service for consumers run by financial journalists and a panel of independent experts.