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Legal Dictionary

collateral

Legal Definition of collateral

Noun

  1. Property which has been committed to guarantee a loan.

Definition of collateral

Etymology

    Recorded since c.1378, from Old French, from Mediaeval Latin collaterālis, from Latin col- ("together with") (a form of con-) + the stem of latus ("side").

Pronunciation

  • IPA: /kəˈlŠtəɹəl/, SAMPA: /k@"l{t@r@l/

Adjective

collateral (not comparable)

  1. parallel, along the same vein, side by side.
  2. Corresponding; accompanying, concomitant.
  3. being aside from the main subject; tangential, subordinate, ancillary.

    Although not a direct cause, empire-building was certainly a collateral incitement for the war.

  4. (family) of an indirect ancestral relationship, as opposed to lineal descendency.

    Uncles, aunts, cousins, nephews and nieces are collateral relatives.

    * 1885, Richard Burton, The Book of the Thousand Nights and a Night, volume 5,
    The pure blood all descends from five collateral lines called Al-Khamsah (the Cinque).

  5. relating to a collateral in the sense of an obligation or security

Derived terms

  • collaterality
  • collaterally
  • collateral damage
  • collateral form
  • collateral security

Related terms

  • lateral

Noun

collateral (plural collaterals)

  1. A security or guarantee (usually an asset) pledged for the repayment of a loan if one cannot procure enough funds to repay. (Originally supplied as "accompanying" security.)
  2. (now rare) A collateral (not linear) family member.
  3. A branch of a bodily part or system of organs

    Besides the arteries blood streams trough numerous veins we call collaterals

Derived terms

  • marketing collateral

Related terms

  • lateral

See also

Further reading

Collateral (finance)

In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan[1][2]. The collateral serves as protection for a lender against a borrower's risk of default - that is, any borrower failing to pay the principal 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 lending (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 securities, often known as margin. Another example might be to ask for collateral in exchange for holding something of value until it is returned (e.g., 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 acquiring a loan depends on the ability to use assets, whether real estate or any other; as collateral.

References

  1. Garrett, Joan F. (1995). Banks and Their Customers. Dobbs Ferry, NY: Oceana Publications. p. 99. ISBN 0379111942.
  2. Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 513. ISBN 0-13-063085-3.

References:

  1. Wiktionary. Published under the Creative Commons Attribution/Share-Alike License.



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