What is Collateral?
A definition of Collateral
“Collateral refers to an asset that a borrower offers to a lender as security for a loan. It helps to reduce the risk for the lender in case the borrower defaults.”
Business Glossary > What is Collateral?
Examples of Collateral in a Sentence:
The bank asked for collateral before approving the loan.
Real estate can serve as collateral for the mortgage.
He pledged his car as collateral to secure the personal loan.
Why is Collateral Important in Business?
Collateral is crucial because it provides security to lenders, reducing the risk associated with lending. This assurance allows borrowers to access loans they might not otherwise qualify for and can influence terms such as interest rates.
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Associated Terms
Here are some associated business terms and synonyms for “Collateral”:
- Security
- Guarantee
- Pledge
Agriculture Loan Collateral at Wells Fargo
Wells Fargo requires farmers to use their agricultural assets as collateral when applying for farming equipment loans. As the collateral’s value increases or decreases, the loan amount can be adjusted accordingly.
Final Notes on Collateral
When securing a loan with collateral, borrowers should consider the asset’s value and the implications of potentially losing it if they cannot repay the loan.
This has been a definition of Collateral meaning.
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