Every year the cycle repeats, in December retail stores do their best to entice customers to buy, buy, buy, who in turn in January look to the “empeños y ventas” (also referered to as “compras y ventas”) – pawnshops to generate cash to lighten the “cuesta de Enero”, a term used in Costa Rica to describe the uphill financial situation of the beginning of the year.
In the old days, pawnshops were mainly located only in the sleazy areas like the Coca Cola and Mercado Bobon of downtown San José. Today, compra y ventas are everywhere. In Pavas, in San Pedro and even in the upscale areas like Belén.
La Cueva – one of the largest pawn brokers – and others are ready for the January bonanza, especially in the first days of the month when people bring in their jewellery, flat screens, laptops, tablets, cellular phones, power tools and so on, for a quick cash fix.
Norman Mayo Arrieta, manager of La Cueva, told CRHoy.com, “it’s interesting how many of the items purchased on Black Friday are pawned in Juanuary to address the lack of money for the beginning of the year“.
Pawnshops in Costa Rica charge a monthly interest of 5% on items valued over ¢100.000 colones (US$200) and 10% for items valued below. Wihout the need of a calculator, the interest comes to between 60% and 120% per year. Pawnshops are governed by Ley 6122 enacted on November 17, 1977.
The concept and high interest rate is legal, the compra y ventas are not shady deals done in dark alleys, applying a very simple concept: money is lent on collateral, generally used items.
The process of turning a used item or items into cash is simple:
- the borrower brings in his/her item(s) for an evaluation by the pawn shop owner
- a loan value is agreed to and terms and conditions set
- the borrower walks away with cash in hand, with the promise to return for the goods (and repayment of the loan) within 90 days
- the pawn shop is looking to the interest earned.
- the goods remain remain the legal property of the owner (borrower), with the pawn shop storing it, taking care to keep it in good condition
- the borrower makes promptly payments of interest
- goods to be kept over the initial 90 days is on agreement between the parties
- if the goods aren’t claimed after the term of the loan, the pawn broker can legally sell the goods
Some pawn shops assess the trade as either: a cash sale, where the borrower never intends to reclaim the property or a loan. In the case of the former, the pawn shop is looking to earn interest and a profit from the sale of the goods, while in the latter, just the interest.
Some considerations before borrowing from a pawnshop:
- You must be the legal owner of the goods.
- Interest payments are made in advance, one month is the minimum.
- Ask if “pay downs” on the loan are permitted.
- You will need a photo ID: cedula, passport, drivers license, etc.
- The receipt is not transferable (that is you and only you or duly authorized person can recover the goods). Anyone can make payments on interest or principal, however.
- The pawnshop, although is obligated to take care of your goods, in the end is not responsible for its deterioration.
- All loans are for three months. unless extended, the pawnshop can legally sell the goods not claimed.
- Pawnshops are governed by Ley 6122 enacted on November 17, 1977.