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.
First recorded in 1350–1400; Middle English, from Medieval Latin collaterālis, equivalent to col- a variant of com- + Latin laterālis “on the side of the body”; see col-1lateral
Collateral is an asset, such as a home or a car, pledged by a borrower that a lender accepts as security against a loan in case the borrower for any reason cannot pay back the loan.
If a borrower fails to pay back a loan, the lender can seize the collateral and sell it in order to recover the loan amount.
Examples of collateral in a sentence
“A secured loan gets backed by some type of collateral, such as your vehicle or a savings account.” —”What Is A Personal Loan?” Rocket Loans. Retrieved March 15, 2020.
“Since they don’t tend to have collateral attached, personal loans tend to come with higher interest rates than car and mortgage loans.” —”The Best Ways To Finance Your Budding Business” Rocket Loans. Retrieved March 15, 2020.
“By contrast, an unsecured personal loan isn’t backed by collateral, which means that a lender will decide whether you qualify based on factors like your credit history and income.” —”What Is A Personal Loan?” Rocket Loans. Retrieved March 15, 2020.
Other terms connected with the topic of collateral
For the medical community, in particular, the war on drugs produced widespread collateral damage in the form of treatments undiscovered, in the form of human suffering unalleviated, in the form of scientific knowledge unattained.
Most of these sites—notably Compound and Maker—rely on a decentralized network of lenders and borrowers, who use smart contracts to arrange collateral and payment terms.
Sid Coelho-Prabhu, who is leading the Coinbase wallet initiative, says any loans consumers make on the platform are secure, since they are backed by borrowers’ collateral.
The move comes in the wake of mounting concern about the scale of predatory lending given the proliferation of startups offering online, collateral-free loans in Kenya.