If you’re considering a loan against your vehicle, it’s wise to be familiar with the legal aspects of pawning your car in South Africa.

This will help you choose a properly approved credit provider and ensure that the terms of an agreement are above board.

What the law says about pawnbrokers in South Africa

In South Africa, pawnbrokers are classified as credit providers. They fall under the provisions of the National Credit Act (NCA).

In order to protect consumers, the act prescribes the maximum fees and interest rates that can be levied on pawn transactions. It also stipulates that all credit agreements must clearly state the date on which the agreement ends.

In a further step to mitigate risk, the act states that while in their care, your car is the sole responsibility of the pawnbroker. It must be returned once the loan has been repaid according to the agreed terms.

Pawnbrokers who do not comply with the provisions outlined above are in transgression of the law. You would be within your rights to lodge a complaint with the National Credit Regulator (NCR).

What protection do consumers have under the National Credit Act?

The act protects consumers against losses should the vehicle be damaged or lost while in the safekeeping of the pawnbroker.

When the loss or damage is due to fire, flood or any circumstances beyond the pawnbroker’s control, you are refunded the fair market value of the car, less any money owing.

If, however, the vehicle has been sold or lost due to circumstances within the control of the pawnbroker, the payout is double the market value, minus any outstanding debts.

Where the law may fail to protect consumers

Despite the best intentions of the act, there are legal loopholes that are readily exploited by dodgy “pawn” loan providers.

There is a rising incidence of consumers who are signing legally-binding agreements without understanding the terms, conditions and risks associated with pawn transactions.

Even the best laws can’t provide full protection. It’s important for consumers to be aware of common red flags associated with pawning a car in South Africa.

Pawn-and-still-drive-it schemes

As reported in the Daily Maverick, the NCR regards pawn-and-still-drive-it schemes as scams.

In these types of transactions, the loan provider “buys” the car from you and “sells” it back to you at the end of the loan term.

In some cases, they even charge a monthly rental for the use of the car, over and above the loan repayments.

If you can’t pay the rental fee or default on any of the repayments, the car is forfeited to the loan provider.

By signing over the ownership of the vehicle, you are in fact entering a sales agreement and not a pawn agreement, and the provisions of the NCA do not apply.

Not understanding a contract

It’s vital to be aware of what you’re agreeing to before you sign, including all charges and what will occur if you fail to make agreed repayments on time.

Signing a contract doesn’t sign away your basic legal rights under the National Credit Act, but contract terms can be legal without being in your interests.

What to avoid when choosing a pawnbroker in South Africa

Avoid a pawnbroker with these terms and conditions:

• extra administrative costs and early settlement penalties
• request to hand over your ID book or passport as collateral
• request to sign over your car title at loan initiation
• a social media presence only
• no physical office
• no official accreditation.

Our accreditation at Pawn My Car

You must understand the legal aspects of pawning your car. If you are unsure of anything, ask one of our representatives.

Pawn My Car is a division of a registered financial services provider. We comply fully with the NCA. We’re also registered with the South African police.

We do not offer pawn-and-still-drive-it schemes or engage in dubious practices like renting you your own car. Instead, we offer a straightforward, transparent process and competitive interest rates.

Call us on 0861 112 866, send us a WhatsApp or pop into one of the Pawn My Car branches – or apply for loan against your car online.

Complete an application now