The National Credit Regulator (NCR) is concerned about the rising number of consumers who pawn their motor vehicles so they can get loans.
“Although pawning of assets for loans is allowed under the National Credit Act (NCA), the NCR cautions consumers against pawning their motor vehicles as they could lose them to pawn brokers if they are unable to repay the loans within the agreed time,” said Nthupang Magolego, senior legal advisor at the NCR.
The NCA allows the pawn broker to keep the consumer’s pawned asset as security and to return it once the loan is repaid. Otherwise the pawn broker can sell the asset and use the proceeds to settle the loan.
“Consumers are advised to read the pawn broker’s credit agreement carefully to avoid signing contracts that transfer ownership of their pawned assets to pawn brokers before they default.
“The pawned asset only serves as security for the loan and can only be sold if the consumer has not paid back the loan,” Mr Magolego said.
The pawn broker keeps the pawned asset at its own risk.
“Over and above the loan that consumers must pay back, some pawn brokers also add storage charges, which is illegal and results in very expensive loans,” Mr Magolego explained.
A pawn transaction is a short-term credit transaction under the NCA.
The interest which the pawn broker can charge is limited to five percent a month on the first loan and three percent a month on subsequent loans in one calendar year.
“Pawning assets for loans should ideally be used for small amounts of loans, where small assets such as cellphones, laptops or similar assets are pawned,” said Mr Magolego.
Visit www.ncr.org.za or call 0860 627 627.