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collateral (noun) a security for a loan.

When a person borrows a large amount of money, they offer their valuable goods or property as collateral. That is, in case they are unable to pay back the money, they promise to give their property or valuable goods to the lender. The property or the valuable goods so pledged are the collateral. The collateral, thus, is the guarantee for the repayment of the loan.

  • Paul pledged his beach cottage as collateral for the loan he borrowed from his cousin Peter, and when he was unable to repay the amount on time, Peter took possession of the beach cottage.
  • Banks not only lend money at lower rates of interest, but do not insist on collateral if the loan amount is below a certain level.
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Last Modified : 11-May 2009
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