Collateral

What is Collateral?

Collateral is the American term for Security that is pledged (usually an asset) for the repayment of a loan if the borrower cannot procure enough funds to repay. In recent years it has made its way into popular usage in the UK.

There are different types of Collateral, such as a cash-secured loan which lets you pay a cash deposit or a Mortgage that uses the house itself as security.

Loans taken out that use Collateral are called Secured Loans .


Q: What can be used as collateral?

A: Depending on what type of loan you have taken out: your car, house, a down payment or anything else of value can be used as collateral.

Q: What happens to collateral if I don’t make payments?

A: In most cases, Collateral can be sold on by the lender to help recuperate any losses brought about by the borrower not repaying a loan. That is why Collateral is typically something with a suitable sale value.

Q: What is the difference between collateral and lien?

A: Collateral uses a Lien. A Lien is what gives the lender the right to access and seize collateral should the loan repayments not be made in time.

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