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What is collateral damage?
What is a collateral consequence?
What is collateral risk?
What is collateral & why is it important?
Collateral consequences are the effects of a given action or inaction that are unintended, unknown, or at least not explicit. [1] A collateral consequence may simply be one that is beyond the scope of consideration.
- What Is Collateral?
- How Collateral Works
- Types of Collateral
- Examples of Collateral Loans
- The Bottom Line
Collateral in the financial world is a valuable asset that a borrower pledges as security for a loan. For example, when a homebuyer obtains a mortgage, the home serves as the collateral for the loan. For a car loan, the vehicle is the collateral. A business that obtains financing from a bank may pledge valuable equipment or real estate owned by the...
Before a lender issues you a loan, it wants to know that you have the ability to repay it. That's why many of them require some form of security. This security is called collateral, which minimizes the risk for lenders by ensuring that the borrower keeps up with their financial obligation. The borrower has a compelling reason to repay the loan on t...
The nature of the collateral is often predetermined by the loan type. When you take out a mortgage, your home becomes the collateral. If you take out a car loan, then the car is the collateral for the loan. The types of collateral that lenders commonly accept include cars—only if they are paid off in full—bank savings deposits, and investment accou...
Residential Mortgages
A mortgage is a loan in which the house is the collateral. If the homeowner stops paying the mortgage for at least 120 days, the loan servicer can begin legal proceedings, which can lead to the lender eventually taking possession of the house through foreclosure. Once the property is transferred to the lender, it can be sold to repay the remaining principal on the loan.
Home Equity Loans
A home may also function as collateral on a second mortgage or home equity line of credit (HELOC). In this case, the amount of the loan will not exceed the available equity. For example, if a home is valued at $200,000, and $125,000 remains on the primary mortgage, a second mortgage or HELOC will be available only for as much as $75,000.
Margin Trading
Collateralized loans are also a factor in margin trading. An investor borrows money from a broker to buy shares, using the balance in the investor's brokerage account as collateral. The loan increases the number of shares the investor can buy, thus multiplying the potential gains if the shares increase in value. But the risks are also multiplied. If the shares decrease in value, the brokerdemands payment of the difference. In that case, the account serves as collateral if the borrower fails t...
You risk losing your collateral if you fail to pay back your debt. So to ensure you keep your car, home, or any other valuable asset being used as collateral on a loan, always make your payments on time to minimize any possibility of defaulting on your debt.
- Julia Kagan
Collateral damage is damage to things that are incidental to the intended target. Collateral risk results from the actions taken to reduce (buffer) risk exposure and achieve “risk parity”. By collateral I am referring not to money, but risks that emerge as a result of addressing an identified risk.
- Greg Hutchins
Sep 17, 2024 · Collateralization is the use of a valuable asset to secure a loan against default. The collateral, like a house or a car, can be seized by the lender to offset any loss.
- Julia Kagan
The meaning of COLLATERAL is property (such as securities) pledged by a borrower to protect the interests of the lender. How to use collateral in a sentence. Did you know?
Sep 29, 2017 · Natural Meaning. Postface. ... FIVE - Collateral Effects. from Part III - Action and Human Diversity. Published online by Cambridge University Press: 29 September 2017
noun [C] uk / ˈkɒn.sɪ.kwəns / us / ˈkɑːn.sə.kwəns / a result of a particular action or situation, often one that is bad or ... See more at consequence. (Definition of collateral and consequence from the Cambridge English Dictionary © Cambridge University Press) Examples of collateral consequences.
