Pros & cons

Pawnbrokers provide value for money on short-term lending of up to a few hundred pounds. The monthly borrowing rates of 3 to 7 per cent work out cheaper than unauthorised bank overdrafts and some authorised overdrafts on loans up to pounds 500.

However, they are hugely expensive for long-term lending. The equivalent annual rates are an astronomical 39 to over 100 per cent.

At a typical rate of 6 per cent, a one-month loan of pounds 500 from a pawnbroker will cost pounds 30. Only the Midland will charge you less if you breach your overdraft limit at pounds 26.50

The cheapest solution to borrowing for less than a month is still a credit card. If you pay your bills immediately you will pay nothing apart from the annual charge of around pounds 12.

Personal loans from the high street banks are also much cheaper, offering equivalent monthly borrowing rates of around 1.5 per cent. But you cannot get a personal loan from a high street bank for less than pounds 500.

The cost of borrowing pounds 100 for one month on authorised overdraft ranges from pounds 6.50 to pounds 10.46. A pawnbroker will probably charge you about pounds 6. However, if you borrow pounds 200 the pawnbroker's bill is pounds 12, whereas the bank's charge is not repeated.

Don't use a pawnbroker unless it is a member of the National Pawnbrokers Association (NPA). Don't borrow pounds 25 or less on goods worth much more as you will not have any right to the sale surplus if you do not redeem your pledge.

Don't leave shares assigned as pledges while dividends are payable.Don't borrow more than you can afford to repay in six months if you want your pledge back.

The National Pawnbrokers Association is at 1 Bell Yard London WC2A 2JP 0171 242 1114.

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