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collateral

kuh-LAT-uh-rul /kəˈlætərəl/

nounadjectiveC1GREGMAT

formalfinancelegal

Noun: Something pledged as security for repayment of a loan, to be forfeited in the event of a default. Adjective: Additional but subordinate; secondary.

In finance, 'collateral' is an asset (like a house or car) that a borrower offers to a lender to secure a loan. If the borrower defaults, the lender can seize the collateral. As an adjective, it means 'side-by-side' or 'secondary.'

The story behind the word. The word 'collateral' comes from the Medieval Latin 'collateralis,' meaning 'side by side.' It's formed from the Latin prefix 'con-' (meaning 'with, together') and 'latus' (meaning 'side'). The idea is that the collateral stands 'side by side' with the main obligation, providing additional security.

Word relationships

security: Broader term for anything that gives assurance of repayment; 'collateral' is a specific type of asset-based security.
guarantee: A formal promise or assurance that certain conditions will be fulfilled.

unsecured loan: A loan not backed by collateral.

Commonly confused with

guarantee: 'Collateral' is a tangible asset pledged; a 'guarantee' is a promise, often from a third party.

Collocations

put up collateral
provide collateral
sufficient collateral
collateral damage (figurative)

Idioms & expressions

collateral damage (unintended harm)

Example sentences

"The house itself served as collateral for the mortgage loan." Applying for a mortgage.
"Without sufficient collateral, the small business struggled to secure funding from traditional banks." A business loan.
"The agreement stipulated that the borrower's car would be used as collateral against the personal loan." From a legal document.

Memory hook

Think of 'collateral' as something 'co-located' or 'co-lateral' (side-by-side) with your loan, ready to be taken if you don't pay. Co-located security

When not to use

Do not use 'collateral' as a noun to refer to any kind of security; it specifically means an asset pledged against a loan. Avoid using the adjective form when the financial noun is intended.

Fun facts

The term 'collateral damage' in military contexts refers to unintended damage or casualties, reflecting the 'side-by-side' or 'secondary' meaning of the adjective form.