Definitions (2)
Related Terms
1. Secondary, subordinate, or supplementary item accompanying a primary item.
2. Specific asset (such as land or building) pledged as a secondary (and subordinate) security by a borrower or guarantor. The principal security is usually the borrower's personal guaranty, or the cash flow of a business. Except for highly creditworthy customers (who can get loans against only their signatures) lenders always demand a collateral if the primary security is not considered to be reliable or sufficient enough to recover the loan in case of a default. A lien is created when the collateral is registered in the public records office, giving the registered lender priority over other lenders on the same asset or property.
Lenders have the legal right to seize and sell a collateral if the borrower cannot pay back the loan as agreed. Sometimes the asset being financed (such as accounts receivable, inventory, machinery) is itself used as a collateral; in home mortgages the property being bought serves as a collateral. See also collateral value and cross collateral clause.

Use 'collateral' in a Sentence

When letting Sarah borrow my camera, I wanted her to give me her laptop as collateral in case she lost or damaged it.
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Before I let you borrow one of my possessions that I value dearly, I require collateral from you so that I know I will get my item back.
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When the army decided to carpet bomb the enemy they knew there would be a lot of collateral damage caused to civilians living in the target area.
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