collateral
An asset pledged by a borrower to a lender as security for a loan, which can be seized if the borrower defaults.
Specifically refers to physical or financial assets (like a house, car, or stocks) that back a loan, rather than a personal guarantee or promise.
Word relationships
- security: Security is a broader term that can include personal guarantees, whereas collateral specifically refers to assets.
- surety: Surety often refers to a person who takes responsibility for another's debt, rather than a physical asset.
- unsecured debt: Debt that is backed only by the borrower's creditworthiness rather than any physical asset.
Commonly confused with
- guarantee: A guarantee is a legal promise to pay, while collateral is the physical asset that can be seized.
Word family
- collateralize (verb): To secure a loan with collateral.
- collateralization (noun): The act of securing a loan with assets.
Collocations
- post collateral
- seize collateral
- collateral damage
- put up collateral
Example sentences
- "She used her family home as collateral to secure the business expansion loan." A standard mortgage agreement.
- "The bank demanded collateral before approving the high-risk startup loan." A classic financial textbook explanation.
Memory hook
Think of 'co-lateral' as something standing 'lateral' (on the side) to your main promise, ready to support the loan if you fall. Lateral means side; collateral is the side-asset backing your loan.
When not to use
Do not use to describe a simple promise or verbal guarantee; it must refer to a tangible or financial asset of value.
Fun facts
- In medieval times, collateral could include livestock, land, or even family members held as hostages until a debt was paid.
Explore more words
subordinate, Foreclosure, ancillary, Mortgage, asset, pledge
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