Along with pawn transactions generally, the concept of pawning a car is often associated with a number of myths or misperceptions. If you’re considering using your car to secure funds in South Africa, it’s important to separate fact from fiction. Here, we debunk the top seven car pawn myths.

Interest rates aren’t controlled…

Reputable lenders, like Pawn My Car, comply with the interest rate limits specified in the National Credit Act (NCA).

Above a certain size, all car pawn lenders are required to register with the National Credit Regulator (NCR). This agency regulates the credit industry, ensuring compliance with the NCA and protecting consumers from unfair or illegal practices (including punitive interest rates and fees).

That said, make sure you deal only with a properly established, accredited pawnbroker. Whenever financial transactions are involved, scams are a possibility in South Africa.

Interest rates on car pawn loans do tend to be higher than for traditional bank loans, in return for faster, easier access to funds.

You’ll struggle to get your car back…

Accredited lenders specialise in lending, not in reselling cars. It’s not in their interests to have to do this. Instead, their long-term survival depends on satisfied customers, who will recommend their services and turn to them again for funding if needed in the future.

A car pawn loan should take the same form as other types of asset-based or collateral-backed loans. A clear legal agreement protects both parties.

There is, again, one big proviso. Don’t consider a “pawn and still drive it” scheme in South Africa. These tend to be scams and have resulted in warnings from the NCR, as well as articles like this one from the Daily Maverick.

A reputable financial services provider will keep the collateral you provide (a vehicle in this case) until the loan agreement is fulfilled. However, this should not compromise your ownership of the asset in any way unless there is a serious default on the loan.

The application process is bound to be stressful…

Experience with other types of loans may make you assume that you’ll need to jump through a lot of hoops. For other short-term loans, it’s common to have to wait in queues, furnish extensive paperwork (including several months’ worth of bank statements), have in-person interviews and brook long delays.

When it comes to pawning a vehicle, however, the application process couldn’t be much simpler. As long as you’re the legal owner of a fully paid vehicle, all you need is a copy of your ID, proof of residence and the original registration certificate for the vehicle. You can then apply online in minutes.

You need a good credit history to get a loan…

Traditional lenders like banks often won’t approve short-term loans for individuals with poor credit scores. That’s because they use credit ratings to “guess” how likely clients are to pay back loans.

When you pawn your car, however, the value of the car serves as collateral for the loan. The lender doesn’t have to depend on guesses, or assume a comparable level of risk.

For this reason, your credit history isn’t of particular interest to asset-based lenders. If you default on repayment, it won’t affect your credit rating either.

It’s better to get a payday loan if you need funds fast…

Payday loans in South Africa often come with risks and exorbitant interest rates. This may be seen as a trade-off for fast access to cash.

However, the car pawn process is equally fast. You can secure a loan against the title of a vehicle in less than an hour. And often, you can have access to the funds on the same day. Depending on the vehicle you have, you can also typically access a larger loan amount than you’ll be offered by a payday lender.

Car title loans are hard to repay…

Any loan is a good idea only if you’re reasonably certain you’ll be able to repay it in line with the agreement you sign.

Beyond this caveat, car pawn loans tend to be pretty flexible. The terms should be clear, and repayments shouldn’t be more difficult than for any other type of short-term loan.

Car loan repayment terms in South Africa range all the way from 1 to 36 months, depending on who you take a loan with. Many lenders also offer the option of renewing a loan agreement.

The lender wants to resell your vehicle…

A common car pawn myth is that the lenders want to resell your car. However, car title lenders don’t typically benefit if you fail to repay a loan. They don’t want the extra effort or risk of having to sell vehicles to recoup losses.

Any reputable lender will discuss the terms and conditions of a loan with you to make sure that you fully understand and agree to the payment plan.

With Pawn My Car, you can use a car that’s in your name to secure a loan quickly and easily, with no delays and with terms that are flexible and transparent. For more information, contact us on 086 172 9648 or simply complete and submit our online application form.

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