Definition
An asset you pledge to secure a loan; if you default, the lender can claim this asset.
What to consider
- Understand which assets you’re putting up as security for a loan.
- Assess the value and liquidity of the collateral.
- Know how the collateral influences your loan’s terms.
Real world scenarios
- When applying for a home equity loan, Noah used his house as collateral, giving the lender reassurance in case he was unable to repay the loan.
Related terms
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