Raw materials in this article
by Sabine Hildebrandt-Woeckel, Euro am Sonntag
D.he door to the street is open, the large interior appears light, tidy and friendly. The older lady who enters hesitates anyway. “What can I do for you?” She is greeted warmly. She barely looks up as she takes a small box out of her pocket. A hodgepodge of jewelry emerges: chains, a ring, individual earrings and also some defective looking parts. “Is that worth something?” The nervousness in her voice cannot be ignored. She has never been here and is clearly skeptical.
Owner Christian von Engeln-Martini, who now stands behind the counter of his Munich shop, is not surprised. Because like you are many who enter a pawnshop or – as the official name – a pawnshop for the first time. “Pawnbrokers”, von Engeln-Martini describes the prevalent prejudice to this day, “are dubious figures who live in back rooms and try to pull the customer over the table”.
This picture has little to do with today’s reality, emphasizes Wolfgang Schedl, managing director of the Central Association of the German Pfandkreditgewerbes (ZDP). However, it is no coincidence either. For centuries there were on the one hand church and later municipal pawn shops that had more social concerns and looked after the poorest of the poor. On the other hand, there were already tradespeople in ancient times who lent money for goods – and often enough harassed their customers with low loan amounts and horror interest rates. Usurers who drive the poor into ruin are still present in many people’s minds to this day.
The so-called pawnbroker regulation has existed in Germany since 1961, imposing strict rules on the 250 or so companies in this country. And which also ensures that there can be no interest in depressing the value of a commodity. Because the earnings of the pawnbrokers result solely from interest and fees, which are based on the amount paid out.
What is left is auctioned
There are various reasons why the loan that is offered still often seems low to customers. One of them is the buffering of your own risk. If the deposit is not picked up again, it will be auctioned – as required by law. If the pawnbroker makes a loss, this is his bad luck, but if he makes a profit, the customer is entitled to 100 percent.
In addition, the ever shorter lifespan of many consumer goods means that the amounts paid out are shrinking and so has the portfolio of lendable items for years, as Thomas Käfer describes in his recently published book “Alles hat seine Preis”. Cell phones, for example, which were still popular a few years ago, are now only taken by most rental companies new, in their original packaging and with an invoice. And for game consoles that cost a few hundred euros, there is often no more than a loan of 80 euros. Käfer has his shop near Munich’s main train station and is currently Germany’s best-known pawnbroker thanks to his appearance on the RTL show “The Super Dealers”.
On the other hand, many customers do not even know what can be pledged, says competitor Jürgen Racknitz. He is the managing director of the Mannheim Leihamt, the only public pawnshop in Germany that still exists today. Musical instruments, leather goods as good as new, mountain bikes or expensive machines, he makes clear, sometimes even do a lot more than expected. There are also houses that have specifically specialized in cars, technical devices and machines.
Sales generator jewelry
The industry generates most of its sales with jewelry, which can not only be borrowed, but which most shops have also been buying for a good ten years. In both cases, neither manufacturing costs nor the jeweler’s profit margin are included in the calculation. The value of the piece of jewelry corresponds to the pure material value, which is currently particularly high due to the good gold price. Anyone who no longer wears their jewelry anyway thinks, not only of Engeln-Martini, “for them this can be the better option”.
The customer can observe on site exactly how the value of jewelry is determined. All pieces from their box are systematically sorted, then the weight and purity of the precious metals are checked. Traditional aids such as magnifying glasses, scales and nitric acid have long since been used, but a lot of the latest technology. All values are displayed immediately so that the customer can read along. Like many of his colleagues in the meantime, von Engeln-Martini has committed itself to maximum transparency. Also a sign that the industry has developed further – and that it appeals to a much wider group of customers than it did a few years ago.
It is estimated that around a million customers make their way to the pawnshop every year. The Rhine-Neckar Chamber of Commerce and Industry recently determined that it is no longer just traditional private customers, but increasingly also small businesses, craftsmen and medium-sized companies. (Solo) self-employed people who have to overcome a short-term financial bottleneck quickly and easily – for example, because a project needs to be pre-financed.
Flexible pawn loan
It is then not necessarily about the bank refusing the loan or perhaps being able to refuse it; they often simply shy away from the effort. A reason that is increasingly attracting pensioners to pawn shops. The legally required check of their creditworthiness can also make life difficult for them.
The pawn loan, explains ZDP man Schedl, has a number of advantages, of which the limited liability on the pawn is only one. Anyone who receives money from the pawnbroker is not in debt, does not have to disclose his entire financial situation – and in case of doubt is not personally liable for everything he has. These aspects can also be advantageous for very wealthy customers, says Thomas Ignatzi, Managing Director of Frankfurt’s Westend Bank. Ignatzi specializes in loans in kind for wealthy people whose pledge (contemporary art or vintage cars) has a market value of at least 100,000 euros (see interview “We have the expertise”).
In addition, the pawn loan is much more flexible than the bank loan and can be redeemed at any time without a prepayment penalty. And he’s quick. “Normally,” said Engeln-Martini once again, “the thing is done in ten minutes.”
Money without Schufa risks
And indeed: the visit of your next customer doesn’t take much longer. The young man in a suit and tie knows the procedure. Without hesitation, he puts two clocks on the counter. The offer is 1,000 euros – he accepts immediately. For a few years, says the self-employed PR consultant, he has been coming back every now and then when a customer payment is delayed and the overdraft facility has reached the limit. “That is much easier than the discussion with the banks.”
The credit is also not reported to the Wiesbaden-based credit agency Schufa, which is also a plus that pays off especially when there are always short-term needs. Because too many loans quickly have a negative effect on the Schufa score.
Advantages that Stefanie Laak from the North Rhine-Westphalia consumer center in Düsseldorf does not fundamentally deny. At the same time, she makes it unmistakably clear that there are also disadvantages, above all she mentions the keyword price. The pawn loan, so their announcement, is only suitable for short-term bridging and not for people who generally have trouble getting through the first of the next month. One percent interest is due per month, plus fees that are only capped by law up to a sum of 300 euros.
When consumer advocates compared the loan terms of pawnbrokers a few years ago, they came up with costs of up to 40 percent per year, and now it can get even more expensive. A credit line is usually much cheaper, emphasizes Laak. And in particular, those who do not get it should first check what social benefit entitlements they have.
Competition with the overdraft facility
However, pawnbrokers are now also working to make their offerings competitive. For example, the Mannheim lending office offers a Vario deposit model. It stores – similar to a bank safe – pledgeable goods, which can then be borrowed if necessary. The storage is paid once with 0.25 percent of the stored value. On the other hand, pledging incurs fees of six or twelve percent, depending on the value. There is no interest at all. “This makes us competitive with the overdraft facility,” emphasizes Managing Director Jürgen Rackwitz. However, the offer has so far only been available in the premium segment, i.e. for loans of at least 10,000 euros.
In Munich, von Engeln-Martini determined a little more than 700 euros for his customer’s jewelry. If she were to sell, she would get exactly that amount. If she loaned him, another ten percent would be deducted. But the lady first packs the jewelry up again. She doesn’t say what she imagined, but von Engeln-Martini isn’t surprising this time either. Many customers first sleep on the offer for one night – and then come back a few days later. Or they go to the nearest pawnbroker – and hope for more.
Annotation: Pawnbrokers operate credit transactions. But since they only provide loans against a pledge, they do not need approval from the Bafin financial supervisory authority.
You should pay attention to the following with the pawnbroker:
• Try to determine the value of your deposit yourself beforehand. Bring bills or estimates, if available.
• If you want to pledge special items such as postage stamps, antiques or art, it is best to contact a specialist. There is an overview at the Central Association of the German Pfandkreditgewerbes.
• Roughly sort the jewelry yourself.
• Even if you have no idea of the value of your potential pledge, never reveal it.
• Ask the pawnbroker to give you an insight into his auditing activities. Check the scales for jewelry.
• If you find the value too low, negotiate. Tests by consumer advocates have shown that this can be quite successful.
• But don’t try to knock out more money than you actually need, as that will only drive up fees.
• Compare. In other words, always get at least two offers.
Pawnshop: The most important rules:
Loan term: The term is legally stipulated for at least three months, sometimes up to six months are also offered. In addition, there is a waiting period of one month until the deposit can be used.
Renewal: Theoretically, an extension is possible as often as required, provided the pledger pays the interest and fees. Often there is a limit to once or twice.
Release: In order to release the pledge again, the borrower must repay the loan received plus interest and fees to the pawnbroker.
Costs: By law, the interest may not amount to more than one percent per month. There is a stipulated scale for fees of up to EUR 300, according to which, for example, EUR 2.40 per month is due for EUR 100 and EUR 6.50 per month for EUR 300. Thereafter, the fees are freely negotiable and can increase up to four percent per month.
Recovery: If the deposited goods are not picked up, they must be auctioned off publicly. This is only possible through a bailiff or a sworn auctioneer. If a profit is made, this is due to the pledger. If he does not pick it up for three years, the profit must be paid to the state.
Interview: » Westend Bank is the only bank in Germany that offers customers loans in kind. They exist when the material assets consist of contemporary art or classic cars.
€ uro on Sunday: Mr. Ignatzi, you lend material assets on, but you don’t see yourself as a traditional pawnbroker. Why not?
Thomas Ignatzi: First of all, we are a bank. That means we have a banking license (see editor’s note) and act as special financiers. We combine credit and risk know-how with in-house expertise in the fields of contemporary art and classic cars. Our offer is valued by borrowers who want to use real assets for financing without selling them – and can also be used additively by third parties. That means we also work with other banks, asset and tax advisors, etc.
What does it mean exactly? How much money can I need to come to you?
As a rule, we lend contemporary art or classic cars with a market value of 100,000 euros or more.
And how does that actually work? I bring my Picasso or my Bentley to you?
There is the next difference. If you secure a loan with a work of art, for example, that does not necessarily mean that we will take it into custody. It is entirely possible that the loaned objects will still hang in a museum or gallery – or in your company. It is also important for our customers that works of art or cars can be brought to trade fairs, exhibitions or auctions temporarily. It can even happen that a pledged property is sold in the meantime and replaced by other objects. Unlike traditional pawnbrokers, we do not have a static solution approach, but develop a suitable solution together with our customers.
With the pawnbroker, the pledge is the only security for the loan. Is that the same with you?
Yes. However, we do not only check the material value with the help of external independent appraisers and our internal experts. All standard bank creditworthiness checking processes also take place. If the loan then comes, further claims on our part are usually excluded. The borrower is responsible for ensuring that the pledge is free from third party rights and that he is the rightful owner. And something else works with us in the same way as with the pawnbroker: The loan is repaid at the end of the term. It can also be extended – provided the customer pays his interest on time.
What does your service cost?
The only thing that is fixed here is that we usually lend 50 percent of their market value to the material assets and that our contracts run for an average of 24 months. Otherwise there is no rigid framework here either. Perhaps reviewers or other experts have to come from abroad. Or the loaned objects need specific storage or special insurance. Every case is different and every financing is negotiated individually.
Thomas Ignatzi, Board of Directors of Westend Bank AG
Image sources: Pavel_D / Shutterstock.com, iStock