Consumers who pawn their vehicles to obtain loans should avoid signing agreements that transfer ownership of their asset to pawnbrokers before they default.

This is the warning of the National Credit Regulator (NCR)‚ which said the pawned asset only served as a security for the loan and could only be sold if the consumer had not paid back the loan.

People who pawned their assets have less protection than those who borrow money from registered credit providers.

Consumers who pawn their assets do not undergo affordability assessments for the loans that are conducted by registered credit providers.

They also do not get a letter informing them that they are in default and are not given a chance to refer the credit agreement to a debt counsellor‚ as contained in Section 129 of the National Credit Act.

As soon as they default‚ pawnbrokers can sell the vehicles to settle the debt.

Expressing concern about the rising number of consumers who pawn their cars in order to obtain loans‚ the NCR said some pawnbrokers also charge consumers illegal charges – such as storage fees – resulting in very expensive loans.

“While pawning of assets for loans is allowed under the National Credit Act‚ the NCR would like to caution consumers against pawning their motor vehicles due to the high risk that they could lose them to pawnbrokers if they are unable to repay the loans within the agreed time‚” said Nthupang Magolego‚ senior legal advisor at the regulator.

Under the Act‚ the interest which the pawnbroker can charge is limited to 5% per month on the first loan and 3% per month on subsequent loans in one calendar year.

Magolego advised that pawning assets for loans should ideally be used for small amounts of loans where small assets such as cellphones‚ laptops or similar items are pawned. — TMG Digital