Pawnbrokers, winners of the growing economic crisis in Germany | TBEN | 17.09.2022

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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 pretty simple: If the pawnbroker in the small western town of Siegburg isn’t very busy, the whole country is doing well. But when people break down its doors, it indicates some kind of crisis.

In September, Bode has been so busy that he can barely think. And that means Germany is in a mess. “A pawnbroker is an indicator,” Bode told TBEN. “People come here when there’s a lot of unemployment or serious economic problems.”

Bode previously managed real estate foreclosures. But in 1994 he set up his own company with his father, a pawn shop in the center of the city of about 40,000 inhabitants, in the state of North Rhine-Westphalia. He has been measuring the economic pulse of the country for almost three decades now.

Customers often come back for their item, if they didn’t want to sell it at all

As the owner of this kind of business, the recent revival should make him happy. But actually he is very concerned.

“I’m getting a lot of much older people in and now middle class members too, which hasn’t happened before,” he said. “I have many new customers. Together with my regular customers, I get people with really fluctuating incomes. Also people on benefits who may be waiting for their benefits to come in.”

Short-term loans only

Bode’s pawnshop in Siegburg is one of approximately 250 privately owned pawnshops in Germany. It is one of the oldest crafts in the country – the first pawn shop was opened in 1560 in the city of Hamburg.

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For those who don’t know, pawnshops work like this: A customer lends the pawnshop his valuable item, such as a piece of jewelry or a camera. The pawnbroker values ​​the item and lends the customer a percentage of that value in return. Usually, the customer has three months to repay the money, plus interest and a fee. If they fail to repay the loan, the item is sold by the pawnbroker, who withholds the money from the sale.

A typical exchange at Bode’s store would be for someone to leave a piece of jewelry there and get, say, $400 (about $400) in return. Within three months, the customer would return €448 or lose the jewel.

Most of the time, however, people refund the money. “Here, the redemption rate is 96%,” explains Bode. “Almost everyone collects the item they deposited because it is usually worth more than the money we give for it.”

“The whole point of this is to get a loan quickly while preserving their assets. If they sold the item, they’d have more money — but then the item would no longer be theirs,” he explained.

Bode shows jewelry on display at a table in his pawn shop

The most collateral that Bode receives is jewelry

Nine out of ten items that end up in Bode’s shop are jewelry. But he also lent money to 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 types of products lose value almost immediately once they are used.

A loan from a pawnbroker is especially attractive in times of crisis because it is the easiest way for many customers to get a loan quickly. Sometimes it is also the only way. A pawnbroker does not ask difficult questions and does not need a creditworthiness or pay slip. All they want to see is an identification.

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“At the bank you get a loan based on your personal creditworthiness. You have to prove that you have sufficient income and you are also screened,” says Bode. “Collateral is a secondary consideration with the bank, while it’s the exact opposite with a pawn shop.”

On the other hand, pawnshops never provide long-term credit. “That’s too expensive and impractical,” Bode said.

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

Changing image of pawnshops

As Bode’s website puts it, “Instant cash. Reputable. Discreet. Competent.”

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

But the popular image of the pawnbroker has improved greatly in recent years. In fact, pawnshops specializing in vehicles are now a fixture in almost every major German city.

“In the past, people were much more ashamed to come here,” Bode recalls. “And we also had a bad image, after all. A filthy business that operates in back alleys, with safety glass in the windows. But that has changed and pawnshops like mine now have a place in central pedestrian zones.”

Even consumer protection organizations don’t look down on pawnshops the way they once did. Still, consumer rights experts warn that these types of loans should only be a short-term solution and a last resort. They note that due to their high costs, pawnshops cannot resolve the debt in the longer term.

Such advice didn’t stop a group of students from barging into Bode at work recently. They lived together and were looking for a quick solution to a problematic energy bill. In the store they had a lively discussion about whose computer actually used the most electricity and therefore had to be pawned.

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

Germans pay a monthly advance on their electricity bill and then receive an annual statement in which the advances are reconciled with the costs based on actual use. At the end of the billing year, the utility may owe consumers money if they haven’t consumed as much as estimated. But sometimes it’s the other way around. Many German households may well be in for a big shock when that final settlement comes this year because of the general rise in energy prices.

“As the final utility bills come and monthly payments rise accordingly, I expect an influx,” Bode predicted. “The number of executions will also rise rapidly because people simply can’t afford their houses.”

This story was originally written in German.

While you’re here: Every Tuesday, TBEN editors round up what’s happening in German politics and society. You can sign up for the weekly Berlin Briefing email newsletter here.

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