Allies or Enemies?
Pawning an item, such as a phone, screen, jewelry, or tools, may seem like a quick solution for obtaining cash. However, the Profeco warns that this option is not without risks. Many people accept unclear or unfavorable terms due to the urgency of money, without considering the consequences for their family’s finances.
A crucial factor is the Costo Anual Total (CAT) of these credits. In some cases, it can exceed 150%, making the loan more expensive than the actual value of the pawned item and potentially leading to difficult-to-cover payments.
Reality: What They Don’t Tell You
One of the greatest risks of pawning without proper information is losing the item permanently. If you fail to pay the loan or its renewals on the agreed dates, the pawn shop has the right to sell the collateral to recover the debt.
Although it may seem dramatic, there’s a little-known possibility: if the pawn shop sells your item for more money than you owe, the excess, called demasiado or remanente, belongs to you. To recover it, you must visit with your active contract and identification to request the cash within the established period.
Common Myths
- Myth 1: “Pawning is easy and cheap.”
- Myth 2: “I can pawn anything without consequences.”
- Myth 3: “All pawn shops are regulated.”
The reality is that pawn loans are quick but not inexpensive. Each borrowed peso has a real cost that includes interest, storage fees, and operational expenses.
Profeco recommends avoiding pawning daily-use or highly sentimental items, as their loss can have a greater impact than the temporary economic benefit.
Not all. There are establishments not registered in Profeco’s Public Pawn Shops Registry, operating outside the legal framework and may not offer valid contracts or guarantees for the items.
Recommendations Before Pawning
- Compare conditions: Review interest rates, fees, and terms in at least three different pawn shops.
- Verify registration: Ensure the establishment is registered with Profeco, and the registration data matches the location.
- Read your contract carefully: Understand deadlines, CAT, and recovery conditions for the item.
- Keep all payment and renewal receipts: They may be useful if any clarification or dispute arises.
- Contact Profeco: If you detect irregularities or the provider fails to meet the agreement.
Lastly, Profeco emphasizes that pawn shops can be a temporary solution in emergencies but should not be viewed as a permanent solution or a sustainable source of income. The key to overcoming the January hurdle, experts stress, lies in financial planning, consumer rights education, and informed comparison of options before making impulsive decisions.
Key Questions and Answers
- What is the January hurdle? It refers to the financial strain many Mexican families face after holiday expenses in December, including gifts, travel, meals, and family commitments, combined with regular expenses like school tuition, utilities, insurance, and credit card balances.
- What are pawn shops? Pawn shops provide immediate loans by accepting valuable items as collateral. Borrowers receive cash and have a specified period to repay the loan, including interest and fees, to reclaim their items.
- Why are pawn shops risky? Pawn loans often come with high Costo Anual Total (CAT) rates, which can exceed 150%. This makes the loan more expensive than the item’s value and may result in difficult-to-manage payments. Additionally, failure to repay the loan can lead to losing the pawned item permanently.
- What should I consider before pawning? Compare conditions in at least three different pawn shops, verify registration with Profeco, read your contract carefully, keep all receipts, and contact Profeco if you encounter irregularities.
