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Collateral (elementary)

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Collateral (Elementary)

Collateral is an asset or property that a borrower offers to a lender as security for a loan. If the borrower fails to repay the loan, the lender can seize the collateral and use it to cover the cost of the loan. Collateral is often used in situations where the borrower has a low credit score or a limited credit history. It can also be used to secure a loan when the borrower has no other assets to offer as security.

History of Collateral

The concept of collateral has been around since ancient times. In the Middle Ages, it was common for borrowers to offer land or other valuable items as security for a loan. In the modern era, collateral is often used in the form of stocks, bonds, or other financial instruments. Collateral is also used in the form of real estate, vehicles, and other tangible assets.

Comparison Table

Type of Collateral Risk Level Liquidity
Stocks and Bonds Low High
Real Estate Medium Low
Vehicles High Low

Summary

Collateral is an asset or property that a borrower offers to a lender as security for a loan. It is often used in situations where the borrower has a low credit score or a limited credit history. Collateral can be in the form of stocks, bonds, real estate, vehicles, and other tangible assets. For more information about collateral, you can visit websites such as Investopedia, Bankrate, and The Balance.

See Also

  • Loan
  • Credit Score
  • Credit History
  • Stocks
  • Bonds
  • Real Estate
  • Vehicles
  • Liquidity
  • Default
  • Secured Loan

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