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- Dictionarycollateral/kəˈlat(ə)rəl/
noun
- 1. something pledged as security for repayment of a loan, to be forfeited in the event of a default: "she put her house up as collateral for the bank loan"
- 2. a person having the same ancestor as another but through a different line.
adjective
- 1. additional but subordinate; secondary: "the collateral meanings of a word"
- 2. descended from the same stock but by a different line: "a collateral descendant of Robert Burns"
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Collateral can mean valuable property used as security for a loan, or a smaller blood vessel or nerve that grows out of the main part. Learn more about the noun and adjective forms, synonyms, and usage examples of collateral.
Learn the various meanings and uses of the word collateral as a noun and an adjective. Find examples, synonyms, etymology, and related phrases of collateral.
4 days ago · Collateral is money or property that is used as a guarantee for a loan, or a person or thing that is related to something else in a certain way. Learn more about the word origin, synonyms, examples, and usage in different contexts.
- What Is Collateral?
- How Collateral Works
- Types of Collateral
- Examples of Collateral Loans
- The Bottom Line
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Collateral in the financial world is a valuable asset that a borrower pledges as security for a loan. For example, when a homebuyer obtains a mortgage, the home serves as the collateral for the loan. For a car loan, the vehicle is the collateral. A business that obtains financing from a bank may pledge valuable equipment or real estate owned by the...
Before a lender issues you a loan, it wants to know that you have the ability to repay it. That's why many of them require some form of security. This security is called collateral, which minimizes the risk for lenders by ensuring that the borrower keeps up with their financial obligation. The borrower has a compelling reason to repay the loan on t...
The nature of the collateral is often predetermined by the loan type. When you take out a mortgage, your home becomes the collateral. If you take out a car loan, then the car is the collateral for the loan. The types of collateral that lenders commonly accept include cars—only if they are paid off in full—bank savings deposits, and investment accou...
Residential Mortgages
A mortgage is a loan in which the house is the collateral. If the homeowner stops paying the mortgage for at least 120 days, the loan servicer can begin legal proceedings, which can lead to the lender eventually taking possession of the house through foreclosure. Once the property is transferred to the lender, it can be sold to repay the remaining principal on the loan.
Home Equity Loans
A home may also function as collateral on a second mortgage or home equity line of credit (HELOC). In this case, the amount of the loan will not exceed the available equity. For example, if a home is valued at $200,000, and $125,000 remains on the primary mortgage, a second mortgage or HELOC will be available only for as much as $75,000.
Margin Trading
Collateralized loans are also a factor in margin trading. An investor borrows money from a broker to buy shares, using the balance in the investor's brokerage account as collateral. The loan increases the number of shares the investor can buy, thus multiplying the potential gains if the shares increase in value. But the risks are also multiplied. If the shares decrease in value, the brokerdemands payment of the difference. In that case, the account serves as collateral if the borrower fails t...
You risk losing your collateral if you fail to pay back your debt. So to ensure you keep your car, home, or any other valuable asset being used as collateral on a loan, always make your payments on time to minimize any possibility of defaulting on your debt.
Collateral is a valuable asset that a borrower pledges as security for a loan. Learn about different types of collateral, such as mortgages, car loans, and margin trading, and how they work.
- Julia Kagan
noun. Finance. property or other assets pledged by a borrower as security for the repayment of a loan: He gave the bank stocks and bonds as collateral for the money he borrowed. Anatomy. a subordinate or accessory part. a side branch, as of a blood vessel or nerve. collateral circulation.
Collateral can be a noun meaning security pledged for a loan or a relative descended from a common ancestor through a different line. It can also be an adjective meaning parallel, supporting, or secondary.
IPA guide. Other forms: collaterally; collaterals. It's what you promise to give someone if you don't repay a loan, like the car you put up as collateral when you take a loan out from the bank. As an adjective, collateral can refer to something indirect or off to the side, like collateral damage.
