What are pawn shop loans

Money: pawnshop as bridging finance

Almost everyone knows this: the month has barely started and the account is empty again. In order to bridge such financial bottlenecks, consumers do not necessarily have to take out a loan from the bank. For example, if you have an expensive camera or valuable jewelry at home, you can get money for it at the pawn shop. But it's not worth it in the long term.

"In principle, it is the same mechanism as in a bank," explains Wolfgang Schedl, managing director of the Central Association of the German Pawn Loan Industry. "They hand in their valuables and get money for it." Lending is usually done quickly, unbureaucratically and without a credit check. If someone owes the loan, the lender can sell the pledge.

For small companies and craft businesses in particular, pawn shops are often an easy way of bridging financial bottlenecks, says Schedl. "In contrast to the bank, no balance sheets have to be presented here." But many private customers also find their way to the pawnshop: "Often they are even regular customers."

The list of items that can be quickly exchanged for cash in the pawn shop is long: whether watches, coins, gold, expensive bicycles, laptops or photo equipment - pawn shops take almost anything. "Even a combine harvester has already been handed in," says Schedl. While in the past a lot of technical equipment such as televisions or stereo systems were lent, today it is mainly jewelry.

How much money the customer gets for his valuables depends on the estimated value of the goods. "As a customer, you don't get the actual value of the deposit paid out in the pawnshop, but only part of the current value," explains Kerstin Föller from the Hamburg consumer center. As a rule, a third to half of the current value is paid. "People should also pick up their things again."

However, customers should compare well between different pawn shops, advises the consumer advice center North Rhine-Westphalia. In a random sample, the consumer advocates found: The offers vary greatly. For a watch with a collector's value of around 800 euros, credits between 60 and 400 euros were offered.

The real business is done by the pawn shops with the fees and interest. The amount is largely stipulated in the Pawnbroker Ordinance of 1961. The interest on the loan must therefore not exceed 1 percent. In addition, there are fees, which are also fixed up to a loan amount of 300 euros: For a loan of 30 euros there are fees of 2 euros per month, for a loan of 100 euros it is 3.50 euros, for 300 euros it is 6.50 euros . Anything beyond that is negotiable.

The regulation also stipulates when a deposit can be used. A loan must therefore always be granted for at least three months. The pawnbroker may assert his claims one month after the due date at the earliest. "If you are still not able to redeem your deposit, you can also extend the contract," says Schedl. "In theory, as long as you want."

However, consumer advocates advise against this. Including fees and interest, it could be very expensive to redeem the deposit, says Föller. Therefore, the term of the pawn shop loan should be kept as short as possible. This is the only way to limit costs.

The managing director of the association, Schedl, considers the amount of the fees to be reasonable. "The cost of storing valuables is high," he says. After all, they have to be secured against theft and fire, and insurance coverage is also mandatory. Schedl therefore also advises consumers not to let the loan agreement run for too long.

If a deposit cannot be released, it will be auctioned off publicly. Consumers can use the auctions as a cheap source of shopping. The pawnbrokers announce the dates in daily newspapers and on their own homepages. If an item of value is sold at a higher price than estimated, the owner of the pledge benefits. "The additional proceeds are due to the customer, losses are borne by the pawnbrokers," explains Schedl.

The surplus must be collected within two years, otherwise it ends up with the tax authorities. Consumer advocates, like pawn shops, therefore advise adhering to deadlines precisely. Because if the trigger date is missed, the jewelry will be auctioned. Pawnbrokers do not have to inform their customers about due dates. However, most items are picked up again in good time: "Less than 10 percent of 100 pledges go up for auction," says Schedl. (dpa)

Read the pawnbroker's ordinance

Central Association of the Pawn Loan Industry