If you need cash for a purchase but only have an extra Ferrari at hand, then you shouldn’t have a problem. Over the last couple of years, luxury asset loans have been growing in popularity, especially among people who have expensive items but are short on cash. If you want a convenient source of funding and don’t mind the extra costs later on, this type of loan should suit you well.
What is a luxury asset loan?
This is a type of loan that uses expensive or luxurious items as security. Think regular loans but instead of using your car or your house as collateral, you use a luxury item you own. Items you can use include luxury cars, yachts, jewelry, wristwatches, handbags, coins, property, precious metals, and even wine, to name a few. Accepted items may differ among lenders.
The rise in luxury asset loans’ popularity is attributed to the increase in the value of classic cars. Indeed, vehicles are among the most commonly used because it is easy to validate their authenticity and value. Depending on the qualities of a particular car—their maker, their history, or just their overall appeal and “wow factor”—they may fetch anywhere from six to seven-digit prices. A 1967 Ferrari Spider similar to the one Steve McQueen drove in “The Thomas Crown Affair” was used in a loan for $2.7 million.
Artworks, such as paintings, are also very popular. Among the factors that determine the art piece’s value are the artist’s reputation, its uniqueness, its demand, sale records, and other data from art galleries. Paintings by famous artists, such as those by Rembrandt, have been used for substantial loans in the past.
The accurate determination of value is crucial to this kind of loan. Lenders understand that luxury pieces can dramatically change in value depending on their state, so all items are stored carefully. After all, should a luxury item’s value drop, they would take the brunt of the blow. In cases where the assets remain with the borrower, the lender will stipulate limitations on their use. If the assets are already in a museum or gallery, the lender can stipulate that the said asset cannot leave the area without their permission.
Why is a luxury asset loan ideal?
Unlike regular bank loans, luxury asset loans often have very steep interest rates. Despite this, it remains highly popular for a number of reasons:
- It is fast. The problem with high-end loans from financing institutions, such as banks, is that they take ages to get approved. A lot of money is at stake, so the bank would naturally look into and examine all details of the transaction, including your ability to pay back the amount you borrowed or the value of the asset you are putting up as collateral. Luxury asset loans essentially do away with these because it doesn’t take very long to determine the value of most luxury assets. In fact, some high-end loans of this type are accomplished within hours. This means that if you need money for something that might be unavailable by a certain hour, you can rely on the luxury asset lender to save you.
- It is discreet. This is one of the greatest perks seen in luxury asset loans. Most conventional loans leave a credit footprint which, depending on your financial history, can spell good or bad news for your future attempts at securing loans. Banks will peek into your credit rating, and any indication that you might be unable to pay back could tarnish your chance of getting any money. Most luxury asset lenders do not run credit checks and the transactions do not leave any mark on your credit footprint. This means that once the deal is done, it’s like the exchange never happened, but you still get the benefits.
- It is convenient. This is not to say that these loans do not have strict requirements or that they do not have their share of needed paperwork. They do, as proven above. What makes this type of loan more convenient is in how it allows borrowers to get the money they need through items they don’t necessarily need. You’re not putting up the house you live in or the car you use to get to work to get money. Instead, you are using a luxury asset that doesn’t have an impact on your ability to survive. Additionally, if you had a Lamborghini and you needed money, the solution could be as simple as selling the car. However, there is a good chance you will be selling yourself short this way. Lenders take value seriously, so you will definitely get what your asset is worth, all things considered.
Who takes out luxury asset loans?
Considering the nature of this type of loan, the ones who will benefit best are those who have the assets lying around but do not have a lot of cash. For this reason, most borrowers are small business owners who need the extra monetary boost. These are usually owners of enterprises that deal in specific kinds of products, such as paintings or automobiles, although some need the money to expand their current business model.
Borrowers also include people who need a large sum of money fast, often without any questions asked. Usually, they use the money to pay off taxes or to purchase expensive but necessary assets, such as a new home. Others take out a loan against their luxury assets so they can buy other luxury assets that they deem to be more valuable.
Luxury asset loans are a sign that both borrowers and lenders are getting more and more creative. This type of loan has a lot to offer to borrowers, but it also comes at with stakes that are higher than normal. Should you take out this kind of loan? As long as you understand its nature and its limitations, and you are certain that you can truly let your luxury assets go, then nothing should stop you.