South Africans Beware - "Pawn and Drive" Schemes are Risky

Many South Africans are struggling financially, with rising food and petrol prices, a weak rand and salaries that just aren't keeping pace.

In this context, asset-based loans using cars as collateral are an attractive proposition. They provide quick access to funds, don't have an impact on borrowers' credit ratings and are an option even when the banks say "no."

But not all car pawn schemes are created equal.

The public should be especially cautious in the case of so-called "pawn and drive" schemes, offering to let people keep their cars and still drive them. When something sounds too good to be true, it usually is.

That's not to say that all car pawn schemes are excessively risky. Asset-based loans have lost the negative connotations they once had in the past, with massive growth in this form of lending worldwide. Where lenders are reputable, they may provide South Africans with a much-needed alternative to the banks for securing credit.

Pawn My Car is one example of a company that offers short-term asset-based loans for cars. According to Barry Ernstzen, a spokesperson for the company, "Pawn My Car believes that pawn and drive schemes are not legal."

National regulators are reaching the same conclusion.

In 2017, Sun Finance South Africa was investigated by the National Consumer Tribunal. The Tribunal found that the terms of the company's "pawn to drive" agreements contravene the National Credit Act (NCA).

Two months earlier, the National Consumer Tribunal also declared the Allied Capital “pawn your car and still drive it” scheme unlawful.

Thousands of consumers who applied for loans from Allied Capital were charged exorbitant interest rates and fees. These consumers signed ownership of their vehicles over to Allied Capital, and were then required to pay a rental fee to continue driving their vehicles.

The National Consumer Tribunal instructed Allied Capital to return all vehicles it had “purchased” under the scheme and to refund fees and interest to consumers. It also ordered the company to change its business model or shut down its operations.

Ernstzen stresses that unlike the often unscrupulous operators of "pawn and drive" schemes, reputable lenders keep customers' cars in secure facilities until loans are repaid. This is what makes it possible for them to offer loans at reasonable interest rates, without putting clients' possessions at unjustified risk.

Ernstzen says, "Pawn My Car keeps your asset in secure storage for the duration of the loan, and all fees are compliant with the National Credit Act regulations."

Before pawning a car in 2018, it pays to find a reputable loan provider and to make sure you know exactly what the terms of the agreement are.

ABOUT PAWN MY CARPawn My Car is a registered financial service provider that offers short-term asset-based loans, using paid up vehicles as collateral. The company has two branches in Cape Town, a branch in Sandton and branches in Durban, Bloemfontein and Port Elizabeth. For more information, go to https://pawnmycar.co.za/about-us/.

ISSUED BY Gnu World Media, on behalf of Pawn My Car