Pawnbrokers win out amid growing crisis

If you want to know the state of the German economy, just count the number of customers in Nikolaus Bode's shop.

The formula for working this out is fairly simple: If the pawnbroker in the small western city of Siegburg isn't very busy, the whole country is doing well. But if people are breaking down his doors, that indicates some kind of crisis.

This September, Bode has been so busy he can hardly think. And that means Germany is in a mess. "A pawnbroker is an indicator," Bode told DW. "People come here when there is a lot of unemployment or severe economic problems."

Bode previously managed real estate foreclosures. But in 1994, he set up his own business with his father, a pawnshop in the center of the city of around 40,000, in the state of North Rhine-Westphalia. He has been taking the country's economic pulse for almost three decades now.

As the owner of this kind of business, the recent uptick should be making him happy. But, in fact, he is seriously concerned.

"I'm getting a lot of much older people coming in and now also members of the the middle class, which hasn't really happened before," he said. "I have a lot of new clients. Along with my regular customers I am getting people whose incomes really fluctuate. Also people on welfare who might be waiting until their benefit comes through."

Short-term loans only

Bode's pawnshop in Siegburg is one of about 250 privately owned pawnbrokers in Germany. It's one of the oldest trades in the country — the first pawnshop opened in the city of Hamburg in 1560.

For those who don't know, pawnbrokers work like this: A customer loans the pawnbroker their valuable item, such as a piece of jewelry or a camera. The pawnbroker values the item and loans the customer a percentage of that value in exchange. Usually, the customer has three months to pay back the money, plus interest and a fee. If they don't pay the loan back, the item is sold by the pawnbroker, who keeps the money from the sale.

A typical exchange at Bode's shop would see somebody leaving a piece of jewelry there and, as an example, getting €400 (around $400) in return. Within three months, the customer would bring back €448, or lose the jewelry.

Most often though, people pay the money back. "Here the redemption rate is 96%," Bode explained. "Almost everybody collects the item they deposited because it's usually worth more than the cash we give them for it."

"The whole point of this is to get a quick loan while also keeping their belongings. If they were to sell the item, they'd have more money — but then the item would no longer be theirs," he explained.

Nine out of 10 items that end up in Bode's store are jewelry. But he's also loaned money on a motor yacht, a carousel and even a horse, he admitted with a laugh. He tends not to take mobile phones as collateral, because these sorts of products lose significant value almost as soon as they are used once.

A loan from a pawnbroker is particularly appealing in times of crisis because for many customers, it's the easiest way to get a quick loan. Sometimes it's also the only way. A pawnbroker doesn't ask any awkward questions, nor do they require a credit rating or a pay slip. The only thing they want to see is some identification.

"At the bank, you get a loan based on your personal credit rating. You must prove that you have enough income and you are also screened," said Bode. "Collateral is a secondary consideration at the bank; whereas it's the exact opposite at a pawnshop."

On the other hand, pawnshops never supply long-term credit. "That's too expensive and impractical," Bode said.

Pawnshops are an option when there is a short-term liquidity problem that the customer knows they will eventually be able to overcome over a certain time period, he explained.

Changing image of pawnshops

As Bode's website puts it: "Cash immediately. Reputable. Discreet. Competent."

In fact, discretion is one of a pawnbroker's most important qualities. This may mean they never greet their customers on the street, in case that might embarrass them.

But the popular image of the pawnbroker has improved markedly over the past few years. In fact, pawnbrokers who specialize in vehicles are now a fixture in almost every sizeable German city.

"In the past, people were definitely much more ashamed of coming here," Bode recalled. "And after all, we did have a bad image. A dirty business operating in back alleys, with security glass in the windows. But that has changed, and pawnshops like mine now have a place in central pedestrian zones."

Even consumer protection organizations no longer look down on pawnbrokers like they once did. Still, consumer rights experts warn, these sorts of loans should only be a short-term solution and a final option. They note that pawnbrokers cannot solve longer-term debt problems because of their high fees.

Such advice did not stop a group of students from barging in on Bode at work the other day. They were living together and seeking a quick solution to a problematic power bill. While in the store, they had a lively discussion about whose computer actually used the most electricity and should therefore be pawned.

That may well be a taste of things to come, Bode warned.

Germans pay a monthly advance on their electric bills, and then receive an annual statement reconciling the advances with the cost based on actual usage. At the end of the billing year, the power company may owe the consumer money if they haven't used as much as estimated. But sometimes it's the other way around. It may well be that many German householders get a nasty shock when that final bill arrives this year because of the general rise in energy prices.

"When the final power bills eventually come and the monthly payments increase accordingly, I expect an influx," Bode predicted. "The amount of foreclosures is also going to rise rapidly because people simply won't be able to pay for their homes."

This story was originally written in German. 

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