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Collateral >> Back to glossary

If you are deciding that you want to borrow money, you have a lot of options of where and how to go about this. One of the things you may be asked to do in order to get the amount you wish to borrow is to put forth some collateral. These are items of worth, or assets that you own that you would forfeit to the lender if you did not meet the terms of the loan that you agreed upon.

This is protection for the lender in case unforeseen circumstances arise where you could not pay the debt owed. Even if you have paid a portion of the amount you borrowed back, and you are not able to pay the rest your assets could be taken over by the lender. Simply put, your collateral acts as insurance on the terms of the loan. Usually when you are borrowing money there are certain additional agreements that are made. You may agree to pay the sum back at a certain percentage of interest and within a certain time period. Your collateral covers all of these terms and any others that may be part of the terms of contract.

The collateral can consist of a variety of types of assets. It could be your vehicle or some real estate property, for example. Often the collateral that is put up is the item or property that you are borrowing the money for to purchase. If you are buying a house or a piece of land then these would most likely be the collateral that would be used. The same would most likely be applicable if you are arranging financing to purchase a vehicle.

If you don't meet the obligations of the contract then the collateral will then be taken by the creditor and transferred into their name. From this point on they can choose to do what they like with it. In most cases they will sell the asset or property for the balance still owed on the loan according to the terms of agreement. There are various laws that are applied to the seizure of property as collateral, or in the case of property it is known as foreclosure.

You will most likely find that once you have a consultation with any of our debt solution experts, after you fill in the request form here at DebtCafe USA, that you will be given additional insight concerning collateral. Home equity loans are a prime example of having to put up your home as collateral, which can put you at risk of losing it should you not be able to meet the demands of the loan. Our professionals will be able to advise you on much safer and far more workable debt solutions.

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