- Project plans
- Project activities
- Legislation and standards
- Industry context
- Specialist wikis
Last edited 19 Nov 2020
Collateral is an item of value, such as a property, that a borrower puts forward as a means of securing a loan from a lender. The item can be seized by the lender if the borrower fails to repay the loan according to the terms which have been agreed. Therefore, collateral is a way in which a lender can acquire some security against the capital that they loan.
For the loan to be considered 'secure', the collateral’s value must equal or exceed the amount remaining on loan. Loans that are secured by collateral typically have lower interest rates than unsecured loans. This is because they are less risky for the lenders, as the borrower has a strong incentive to continue payment and losses can be recovered.
A mortgage is a common type of collateral. The mortgage lender (typically a bank) will usually require that the home being purchased is provided as collateral. If mortgage loan repayments are not made according to the agreed terms, the bank is entitled to take ownership of the home (described as foreclosure), which it can then sell as a means of recouping losses.
NB: In construction, the term 'collateral warranty' refers to an agreement associated with another 'primary' contract providing for a duty of care to be extended by one of the contracting parties to a third party who is not party to the original contract. See Collateral warranties for more information.
 Related articles on Designing Buildings Wiki
- Backward integration.
- Bad debt.
- Collateral warranties.
- Construction loan.
- Credit check.
- Definition of collateral warranty.
- Equity in property.
- Funding options.
- Mezzanine finance.
- Performance bond.
- Practical considerations of collateral warranties.
- Property development finance.
- Trade credit insurance.
- What is a mortgage?
Featured articles and news
ECA and SELECT offer assistance to members set back by delays.
The virtual learning event examines Historic Places - People Places.
Getting post-pandemic infrastructure on the right track.
One of England's grandest country houses.
Take just two minutes to provide your feedback.
An update of standards and regulations is under consideration.
Exploring the key to the adoption of this abundant energy source.
His clients have ranged from Liberace to St Nick to world-class athletes.
These tactical structures can be permanent or temporary.
Organisation recognises milestones of the project's next phase.
Welding and metalworking businesses must manage respiratory risks.
New report explores how regulations are being put into action.
The golden thread and BS 8644-1.