Don’t pawn your car for a loan, warns NCR

THE National Credit Regulator (NCR) voiced its concern regarding the rising number of consumers who pawn their motor vehicles to obtain loans.

“While pawning assets for loans is allowed under the National Credit Act (NCA), the NCR would like to caution consumers against pawning their motor vehicles due to the high risk that 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 pawn brokers to keep the consumer’s pawned asset as security and then return the asset to the consumer once the loan has been repaid. If the loan is not repaid, the pawn broker can sell the asset to settle the loan amount.

“Consumers are advised to read the pawn broker’s credit agreement carefully to avoid signing agreements 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,” said Magolego.

The pawn broker keeps the pawned asset at their own risk. “Some pawn brokers also charge consumers illegal charges, such as storage charges, resulting in very expensive loans,” added Magolego.

A pawn transaction is a short-term credit transaction under the NCA. The interest which the pawn broker can charge is limited to five per cent per month on the first loan and 3 per cent per month on subsequent loans in one calendar year.

“Pawning assets for loans should ideally be used for loans of a small amount, where assets such as cell phones, laptops or similar are pawned,” concluded Magolego.

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