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Tapping the equity in your watch

By Dr. Don Taylor · Bankrate.com
Tuesday, February 18, 2014
Posted: 6 am ET

I'll admit to being a bit of a CNBC junkie, having the channel on during the day when I'm working from my home. Watching the markets is my kind of reality TV, versus spending any time keeping up with any Kardashians, housewives, bachelors, bachelorettes, survivors, etc.

The channel currently has an ad in high rotation for Borro.com. It's a company that offers to make short-term personal asset loans, with watches, jewelry, artwork, wine, cars or most anything of value held as collateral against the loan. The ad had me curious enough about the process to check out its website.

The firm doesn't like the moniker "pawn shop." The CEO, in a taped interview presented on the site, considers the firm a cross between a personal asset lender and a private banker. I've worked for a private bank, so I'm dubious about that part of the comparison, unless it's an emphasis on client services.

Clients have the choice between a personal advance loan or a sale advance loan. The personal advance loan is meant to be a short-term loan that the client repays with the asset held by Borro as collateral. When the loan is repaid, the borrower gets the asset back. In contrast, the sale advance loan is a loan that is paid off by the sale of the asset, which is arranged by Borro. Any proceeds from the sale in excess of the loan amount, interest and fees are paid to the client.

With the personal advance loan, Borro holds the asset until the loan, plus interest is repaid. Borro will loan clients anywhere from $1,000 to $1 million based on the appraised value of the asset. The amount the firm is willing to lend is 30 percent to 70 percent of the asset's appraised value. The interest rate on the loan varies from 2.99 percent to 3.99 percent monthly, and there is also a setup charge of 3 percent to 5 percent. There's no credit check, so the difference in rate and charges is based on the size of the loan and the value of the asset, not your credit history.

It's an expensive source of liquidity. If you pay 3.99 percent per month on a $25,000 loan that's in place for six months, you'll pay $997.50 per month in interest. That's almost $6,000 for six months, plus another $750 to $1,250 for the loan setup fee.

Need to extend the loan? If approved, you'll pay another loan setup fee. The good news: A repeat customer will see the setup fee reduced from a range of 3 percent to 5 percent to a range of 2 percent to 4 percent.

These loans aren't for everyone. They're for people that need immediate liquidity, have personal assets that they're willing to part with, at least temporarily, and can make sense out of paying a monthly interest rate of 2.99 percent to 3.99 percent. According to the CEO, only 8 percent to 10 percent of the clients for personal advance loans don't eventually reclaim the asset.

Are these payday loans for the rich? Not quite. The annual percentage rate on these loans is between 35.91 percent to 52.88 percent (including setup fees) when payday loans can cost much more. On the Web, I found a payday lender with a 391 percent APR quote for a 14-day loan.

What do you think about personal asset lending as a short-term source of liquidity?

You can follow me on Twitter: @drdonsays.

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