collateral investment & finance definition
An
asset pledged as payment for a loan if the debtor fails to make regular
payments. Collateral on a consumer loan may be an automobile, real estate, or
other significant personal property. Collateral on a business loan may be
property, equipment, or other assets of the company. On asset-backed debt, the
collateral is the underlying mortgages or credit-card receivables.
See collateral in Wall Street Words
Assets pledged as security for a loan. In the event that a borrower defaults on the terms of a loan, the collateral may be sold, with the proceeds used to satisfy any remaining obligations. High-quality collateral reduces risk to the lender and results in a lower rate of interest on the loan.
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