i believe if the person that defaults on the loan should have to lose land and just border land for the money he owes,
or give the person 2 options, war or fairly nice piece of productive land to pay off the debt. I think it should just go to pay off the debt completely the game would decide how much the area is worth? or you both would negotiate the trade of lands that you both would feel would be worth the end of the loan.
Then theres always pay up or go to war, which the person that hasnt paid up will likely lose, or if hes just faking it and has an extremely large amount of money from his own money and your money you loaned, well... you might be in trouble? heh )
As far as fulfilling the loan with other products or land, I doubt the AI would directly understand that. What you would need to do is trade diplomatically the goods for money, then repay the loan. But from that angle it should work fine.
bonds shouldnt be able to be taken out even daily once every 3 days should be the most you could do it, its pretty damn much like cheating when you bond out over 40 billion in money... so you cankeep your economy running if you are doing a big army with huge training etc etc eetc.
The effects of taking too many bonds will be extensive... Other than every bond costing you higher interest rates, it will effect your Credit Rating and that will eventually effect Commodity Pricing, any World Market Subsidies, etc And at a certain point, once your Credit Rating gets too low, they won't loan you any more money and you'll find yourself unable to keep making payments and your economy will collapse. (Give someone enough rope, so they can hang themselves )
If you lend someone money, you either have a big stick with which to threaten them into compliance, or you have some other form of coercion to make them toe the line. So in other words, if you don't have the military or economic power to enforce the terms or conditions, you shouldn't be making loans.
I haven't played the Beta, but I would think that the only power suitable for giving out loans would be the world market. Really the only practical reason a player would give another player a loan is if he wants to shore up an ally...and even then only if the ally is acting as a buffer between the player and another larger/hostile player.
So I guess it gets down to this - if a debtor nation thumbs it's nose at it's lendor, it's up to the lendor to put up, or shut up. Automatic loss of land? Noncents! If you want to take something from the debtor, you should have to take it, not have it given to you (unless the debtor agrees to it of course). Yes, this does promote the idea of nations effectively "stealing" from one another - but when it gets down to it, in the battle for survival, there is the winner and the losers. After all, the mob never would have gotten anywhere if they didn't have the muscle to back up their lending practices...
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