1,177. The Collateral

179:6 It is forbidden for a borrower to take a loan and to spend it foolishly so that the money is lost and he can't repay the lender. This is the case even if the lender is very wealthy. One who acts this way is called evil as per Psalms 37:2: "An evil person borrows but does not repay." Pirkei Avos (2:17) says, "Let your friend's property be as precious to you as your own." If the lender recognizes that the borrower is the type of person who is careless with other people's money, it would be better not to lend to him. Refraining from lending is preferable to lending and then having to pursue the borrower for repayment, each time violating the prohibition against acting like a collection agency.

179:7 If a person lends money against some collateral, he must be careful not to use the collateral because doing so would be like interest. If one lent money to a needy person who put up something like his plow or his axe as collateral - items whose rental value is high and which are only worn a little through use - then he may rent them out, even without obtaining permission from the borrower. He then deducts the amount he made through such rentals from the amount owed to him. We do this under the assumption that such an arrangement would be agreeable to the borrower. Some authorities say that only others may rent the collateral but not the lender himself. This is so the lender should not be suspected of using the collateral for free because of the loan.