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Loan Collateral – Weirdest Things Ever Used
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Many loans are guaranteed by some sort of collateral; because the borrower wants his or her stuff back, it increases the likelihood of repayment. Plus, it means that the lender still has something of value even if the loan is never repaid. When rebuilding your credit, you may have made a bank deposit for a secured card or loan. Your house is your collateral when you get a mortgage. But, a few stranger loan agreements have been secured with other, more unusual assets. A few of the strangest:
1. A Soccer Star
A Spanish bank financing the soccer team Real Madrid offered two of the teams players, Cristiano Ronaldo and Ricardo Izecson dos Santos Leite as collateral for a loan. The bank helped finance the acquisition of the two players for a sum that totalled over $111 million. If the bank went under or the team didn’t repay the loan, the players’ contracts would go to the Central Bank of Europe.
2. A Horse
Race horses are, in fact, a common asset for securing loans. A winning thoroughbred can be worth hundreds of thousand. Sometimes, the horse itself is security for a loan; in other cases, the bank asks for breeding rights as collateral.
3. A Cat
A finance company in Louisiana that provides loans for cars and trucks once accepted a cat as collateral. The cat in question was not an ordinary house cat; it was a purebred show animal. The loan officer said that he did not remember whether the borrower ever repaid the loan, but, that he didn’t have a cat, so the loan must have been repaid.
Sex.com, that is. The domain name was valued at over $12 million when it was purchased with a loan from a New Jersey investment firm.
A company’s intellectual property is generally its biggest asset; this is more true than ever in the information age. But, at what price do you value an idea? We’ve just found about only one loan where patents were used as collateral. In this case, a company that manufactured goods for the home put up five patents for a loan of $125,000. The owners needed money, ironically, to sue another company for patent infringement. The case was successful, but, the outcome would have been interesting had they lost.
In Italy, there are lenders accepting wheels of artisan quality parmesan cheese as collateral for business loans. Should the borrowers default, that makes for an awful lot of garlic bread.
7. Designer Handbags
There are now several lenders in the “upscale pawnbroker” business. These companies accept purses, wallets, sunglasses and other designer duds in exchange for a short-term loan.
Chinese manufacturers are buying up rubber lately to use as collateral for business loans. Many economics pros question the wisdom of accepting it as security; the material only has a six month useful lifespan before it needs to be used.
The same pawnbrokers advertising their acceptance of designer goods are usually open to taking fine vintages, as well. According to one broker, most would be surprised by how low the credit ratings are of some of the people who appear the most wealthy.
In Zimbabwe, there is a bank that accepts cows as security for loans. The borrower usually gets the animal back within two years.