Pawnshops offer quick loans without bureaucratic hurdles. For people in financial need who cannot get a loan from traditional banks, they are often the only alternative to access short-term financial resources. To ensure that the visit to the pawnbroker goes as smoothly as possible, those interested should inform themselves thoroughly in advance.
The pawn lending industry benefits from rising inflation
According to a recent study by the Federal Association of Consumer Organizations (vzbv), Germans are ill-prepared for a financial bottleneck. According to this, one in seven people in Germany has recently overdrawn their account or used their overdraft facility within three months. Higher salary classes are also increasingly affected. Around half of those affected explained that the reason for this was high costs, for example due to high inflation or high energy prices. For many households, the stagnating wages in comparison are not enough to cover the rising costs. But one industry seems to benefit from this: the pawn lending industry. According to the Central Association of the German Pawn Lending Industry (ZDP), more and more people in Germany are currently bringing jewelry and other valuables to pawnbrokers.
This is how pawn shops work
Pawnshops offer private individuals and companies the opportunity to bridge short-term financial difficulties by depositing personal valuables in exchange for a pawn loan. This means that the pledgee has liquid money available that they can use to pay bills or make urgently needed investments. Items generally loaned include jewelry, watches, art, antiques, technology and even cars. The amount of the pawn loan depends on the value of the deposit deposited – as a rule, a maximum of 50 percent of the current value of the valuable item is paid out, according to an article in the rbb consumer magazine SUPER.MARKT. After the pawnbroker’s inspection, customers receive a pawn certificate. The loan agreement with the pawnshop specifies the date by which the loan must be repaid. As a rule, customers can redeem the loaned item up to three months later in return for repayment of the loan plus interest and fees. The item remains the property of the customer, but is held by the pawnbroker. If the loan with interest and fees is not repaid and the mortgaged item is not picked up again, the pawn lender is obliged to sell it at an auction to the highest bidder no later than six months after the expiry of the deadline. If the pawnbroker makes a loss if the pawn is used, the customer does not have to fear any personal claims due to the exclusion of personal liability, as the Central Association of the German Pawn Lending Industry (ZDP) explains in an article.
Requirements and legal regulations for operating a pawn shop
According to the law, in order to operate a pawn shop, a commercial license is required in accordance with Section 34 of the Trade Code. In addition, the operator must be able to provide an official certificate of good conduct and proof of the necessary resources. The borrower, on the other hand, does not have to provide any information about his financial circumstances; an identity card or passport is sufficient to determine personal data, as the German Lawyers Register (DAWR) explains in a specialist article.
The amount of interest that the pawnshop can charge and the event of an auction are also strictly regulated. By law, pawn lenders are entitled to interest of one percent of the loan granted. In addition, there are the costs incurred when borrowing against the valuable item, which can be charged to the customer through fees – for example, valuation, insurance and storage of the item. According to paragraph eight of the Pawnbroker Ordinance (PfandlV), the pawnbroker is obliged to insure the pawn against fire, water damage, burglary or robbery for at least twice the amount of the loan. These fees are regulated by law up to a rental amount of 300 euros – however, for amounts over 300 euros they are freely negotiable. After six months at the latest, the pawnbroker is obliged to sell the pledge. If the pawnbroker sells this at an auction for a profit, he is obliged, according to the Federal Administrative Court, to pay any surplus from the auction to the state – unless the customer collects this amount within a deadline, according to the DAWR specialist article.
Prevent cases of fraud
As in every industry, there are dubious providers in the pawnbroking industry. Especially with online pawnshops, you can quickly come across a dubious provider. According to SUPER.MARKT, for example, there were complaints about a company whose customers reported that they were assured during the conversation that they would take out a pawn shop loan. Instead, however, they signed a sales contract – in this case about their car.
According to SUPER.MARKT, even larger stores with many branches are not always reputable. Smaller shops sometimes offer more experience and have often been in business for a long time. In order to prevent cases of fraud, you should get an offer from various pawn shops. Even with reputable providers, it can happen that they evaluate the item incorrectly due to a lack of specialist knowledge. That’s why it’s important to take a close look and set a personal cost limit.
Compare alternatives
The Brandenburg Consumer Center (VZB) advises checking all types of loans carefully before taking them out and obtaining comparison offers. VZB spokeswoman Lisa Högden explained to SUPER.MARKT that it makes sense to examine other short-term options in addition to pawnbroking, such as using the overdraft facility. In the short term, this could even be cheaper, as the effective annual interest rate for a pawn loan amount of 100 euros is 42 percent with one percent interest per month and a fee of 2.50 euros. Hödgen also points out that you can get advice from the consumer advice center at any time if you need support, for example in evaluating the loan conditions. Pawn offices that are members of the official Central Association of the German Pawn Lending Industry (ZDP) ensure that interest amounts or fees are billed properly and in accordance with regulations and that the items in custody are also properly insured, according to SUPER.MARKT. In addition, reviews and experience reports on the Internet about the seriousness, friendliness or handling of the loaned item can help with the assessment.
Editorial team finanzen.net
