Collateral (finance)

Information about Collateral (finance)

This article is about assets that secure a debt obligation. For other uses, see Collateral.

Collateral within a financial context is used to indicate assets that secure a debt obligation. For example, in the case of a mortgage, the house serves as the collateral for the mortgage loan. This way, the bank is secured against the default risk of the borrower not being able to meet the interest payments. In case of default, the bank can sell the house and get its money (or at least a part of it) back.

Concept of "collateral"

Collateral, especially within banking, may traditionally refer to secured lending (also known as asset-based lending) as well as more recently as collateralisation arrangements to secure trade transactions (also known as capital market collateralization). The former often presents unilateral obligations, secured in the form of property, surety, guarantee or other as collateral (originally denoted by the term security), whereas the latter often presents bilateral obligations secured by more liquid assets such as cash or securities, often known as margin. Another example might be to ask for collateral in exchange for holding something of value until it is returned (ie, I'll hold onto your wallet while you borrow my cell phone).

In many developing countries, the use of collateral is the main way to secure bank financing. The ease of getting credit is associated with the opportunity to use movable and immovable assets as collateral.

Faced by lenders to consumers

Main article: Consumer credit risk

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In finance, default occurs when a debtor has not met its legal obligations according to the debt contract, e.g. it has not made a scheduled payment, or has violated a loan covenant (condition) of the debt contract.
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bank is a commercial or state institution that provides financial services , including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit.
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In the simplest meaning, asset-based lending is any kind of lending secured by an asset. This means, if the loan is not repayed, the asset is taken. In this sense, a mortgage is an example of an asset-backed loan.
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A surety is a person who agrees to be responsible for the debt or obligation of another. Additionally, the situation in which a surety is most typically required is when the ability of the primary obligor or to perform its obligations under a contract is in question, or when there
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In commercial and consumer transactions, a warranty is an obligation that an article or service sold is as factually stated or legally implied by the seller, and that often provides for a specific remedy such as repair or replacement in the event the article or service fails to
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Cash usually refers to money in the form of liquid currency, such as banknotes or coins.

Etymology

The English word cash is of the French , itself a borrowing of the Provençal caissa.
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security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities, such as bonds and debentures, and equity securities, e.g. common stocks. The company or other entity issuing the security is called the issuer.
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In finance, a margin is collateral that the holder of a position in securities, options, or futures contracts has to deposit to cover the credit risk of his counterparty. This risk can arise if the holder has done any of the following:

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A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation (usually but not always the payment of a debt) which gives the beneficiary of the security interest certain preferential rights in relation
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Credit risk is the risk of loss due to a debtor's non-payment of a loan or other line of credit (either the principal or interest (coupon) or both).

Faced by lenders to consumers

Main article: Consumer credit risk

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The original use of the word hypothecation was for a pledge of property as collateral for a debt without transfer of possession to the party making the loan. The arrangement is common with modern mortgages - the borrower retains legal ownership of the property but provides the
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Cross-collateralization is a term used when the collateral for one loan is also used as collateral for another loan. If a person has borrowed from the same bank a home loan secured by the house, a car loan secured by the car, and so on, these assets can be used as cross-collaterals
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Collateral (finance)

Information about Collateral (finance)

Concept of "collateral"

See also

Faced by lenders to consumers

Etymology

Faced by lenders to consumers