Collateralization - Explained
What is Collateralization?
Written by Jason Gordon
Updated at September 26th, 2021
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What is Collateralization?
In many credit agreements, a borrower is required to pledge some assets as collateral for the loan. These assets are known as "collateral". These assets can be seized by the lender when such borrower defaults on the repayment of the loan.
Collateralization is a situation whereby a borrower offers a specific property or assets to a lender to secure the loan in the event of the borrowers default on the loan. Collateralization gives lenders the confidence to issue a loan to the borrower, and an assurance that the loan will be repaid.
Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY
Related Topics
- What is a Security Interest?
- Collateral
- Pledge as Collateral
- Collateralize
- Cross Collateralization
- After-Acquired Collateral
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Unsecured Loan Definition
- Unencumbered Asset
- What is a Secured Creditor?
- Unsecured Creditor
- What are the benefits of security interests for creditors?
- Limited Recourse Debt
