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Collateral |
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WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
Collateral is an asset or assets offered by a borrower in order to procure a loan. Should the borrower default on his payment(s), the lender would take possession of the collateral, which may then be sold to recoup the lender's losses.
Technically, collateral could be any asset, though typically it takes the form of personal property, investment securities, or real estate, the values of which can be readily determined.
Other terms in common use in the market are"margin", "margin asset" and "margin agreement" and similar terms using "credit support" instead of "collateral" or "margin," collateral", "collateral asset" and"collateral agreement." [1]
When a lender offers a loan against collateral offered by the borrower, the lender is said to take a security interest in the collateral. [2]
Examples
- A woman takes out a mortgage to pay for her home. As collateral, she offers the home itself. Should she default on the loan, the lender (typically a bank) would take possession of the home. The bank may then sell the property to recoup its losses.
- A man needs a cash loan to pay for several large, immediate expenses. As collateral, he offers the lender his car. Should he default on the loan the lender would take possession of the car, which he or she may sell to recoup losses.
- In Uruguay, no private bank would accept cattle as collateral for a loan. By contrast, in Kansas, cattle are considered the best collateral for a loan.
14c., "accompanying," also "descended from the same stock," "side by side, "together" "parallel, along the side of" 16c., "colleague, associate." Meaning "thing given as security" is from 1832, Amer.Eng., from plrase collateral security (1720). [3]
See Also
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