Financial Glossary what is collateral


Collateral

An asset pledged by a borrower as a guarantee to a lender until a loan or bond is repaid. If the borrower defaults, the lender has a right to sell the collateral asset. An example of a type of financial collateral that can be offered is a life insurance policy which has a cash surrender value equal to or greater than the loan amount. This could be pledged as security.
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