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Collateral

Collateral is a specific kind of property that a borrower pledges to secure repayment of a loan. If for whatever reason you stop making payments on a loan, the collateral you’ve offered can be seized in order to pay for the losses incurred on the part of the lender. That means the collateral needs to be as much as or more than the value of the loan.  

The collateral offers security to the lender, so that means the interest rate on the overall loan can be lower than that of a loan that has no collateral associated with it at all. For instance, there is no collateral when you open a credit card which is one reason that interest rates are so high.

When the lender claims right to a piece of collateral, it’s called a lien.

Real estate assets, which are concrete and easy to measure in value, are probably the most commonly thought of type of collateral but they are far from the only option. Inventory from your business can also be put up as collateral. A savings account is another form of collateral. Invoice collateral can also work if you’re waiting on big payments from slow clients.

 

EXAMPLE:

Can I put up my husband as collateral?