Information On Collateral (finance)

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In loan agreement collateral is a Borrower Pledge (law) of specific property to a lender to Secured loan repayment of a loanlt;/ref>lt;/ref>. The collateral serves as protection for a lender against a borrowers default (finance) - that is, any borrower failing to pay the principal sum and interest under the terms of a loan obligation. If a borrower does default on a loan (due to insolvency or other event), that borrower forfeits (gives up) the property pledged as collateral - and the lender then becomes the owner of the collateral. In a typical mortgage loan transaction, for instance, the real estate being acquired with the help of the loan serves as collateral. Should the buyer fail to pay the loan under the mortgage loan agreement, the ownership of the real estate is transferred to the bank The bank uses a legal process called foreclosure to obtain real estate from a borrower who defaults on a mortgage loan obligation.

Concept of collateral

Collateral, especially within banking may traditionally refer to Secured loan (also known as asset-based lending . More recently, complex collateralisation arrangements are used 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 security (finance) often known as margin (finance) Another example might be to ask for collateral in exchange for holding something of value until it is returned (e.g., Ill 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 acquiring a loan depends on the ability to use assets such as real estate as collateral.

See also

* Security interest * Credit risk * Hypothecation * Cross-collateralization

References

lt;!-- Why does the link to Joan F. Garrett link to David Mumford? --> Category:Basic financial concepts Category:Personal finance ar:ضمان إضافي es:Garantía de:Pfand (Recht) fr:Collatéral (finance) id:Jaminan he:משכון ja:担保 lt:Garantija pl:Zabezpieczenie kredytu sv:Säkerhet (ekonomi)

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