Borrow the car and drive on - a tempting offer with a hook

Recently updated on September 22, 2023 at 02:35 am

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Everyone comes to a point at some point where they need money quickly - be it because of overdue bills, accruing credit debts, job loss or because of a necessary and cost-intensive purchase. There are many reasons for financial difficulties. The first way here is usually to your own house bank. But what do you do if they refuse (further) credit because the creditworthiness is insufficient or the overdraft facility has already been exceeded? Who will give you a loan now? How is it with SCHUFA?

For many, a car deposit is a good way to get money quickly, but there are countless offers on the market - one more tempting and more promising than the other. It often doesn't take long before you read the seemingly redeeming words: "Borrow a car and drive on." Get money and continue driving your own car? That sounds almost too good to be true and unfortunately it is!

What you need to know about sale-and-rent-back

"Borrow a car and drive on", "Sale and rent back", "Sale and lease-back financing", "Rent back sale" - All of this basically means the same thing: you sell your car and rent it back from the lender! This has nothing to do with borrowing. The customer is led to believe that it is child's play to make money without any risks and that on top of that, they can still own their vehicle. However, this procedure is prohibited by law for pawnbrokers:

"The commercial purchase of movable objects with the granting of the right of repurchase is prohibited." (Section 34 Paragraph 4 Trade Regulations)

This is by no means a special form of a pledge contract, but a purchase contract with the right to withdraw or repurchase. To get around this and to make it as difficult as possible for potential customers to recognize this scam, some providers have come up with promising names for their dodgy business models.

Borrowing from the car and driving on - how legal is that?

Both the Administrative Court in Munich (2016) and the Higher Regional Court of Munich (2017) had to deal with the subject of “borrowing from a car and driving on”. They came to the conclusion that the sale and rent back model was not compatible with Section 34 (4) of the Trade Regulations. Since then, these providers have been using terms such as “alternative to car pawn shops” to avoid conflict with the legislature. So it is definitely not illegal, but it is a legal gray area that does not come along without risks and pitfalls. In concrete terms this means:

• You are no longer the legal owner of your vehicle
• Often times, you only get a fraction of what you would get in a reputable auto pawn shop
• Some providers do not agree to a buyback option in the contract
• If you are unable to repay the installments (even if it is only once), the provider, as the owner, is authorized to have the vehicle picked up
• “Borrowing from the car and driving on” is often significantly more expensive than the classic car mortgage loan

What are serious alternatives?

On the one hand, you could of course also sell your vehicle directly and get more money than in the case of a purchase contract with the right to buy back, but at the same time that would mean that you would have to say goodbye to your vehicle for good and would therefore also give up your mobility. A serious and less painful alternative is to go to the classic car pawn shop. Some providers, such as 123Pfand, also offer the option of renting a replacement vehicle for the duration of the contract. In plain language, this means: you take your car to the car pawn shop, in return you receive a pawn loan based on the current value of your vehicle and you still remain mobile - without any risk and legally flawless.

Of course that had not been the case.

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