Collateral

Collateral damage you may have heard of, but what is collateral in a banking sense?

Well, collateral simply refers to some sort of asset that is used as a security.

Often in the world of lending, the person who is borrowing the money (or company etc) will need to put up some sort of collateral, and if they default on the loan then the collateral asset is usually sold by the lender to ensure that the original contract is met.

Collateral can take various forms: such as physical goods, but could also be financial instruments and a range of other things too.

Related Articles

Merger and acquisition
All Or None
Dividend
Legal rate of interest
Consumer Credit

More Financial Words and Vocabulary Explained