Collateral is an item of value that is used to secure a loan. Collateral can be a tangible item, such as a house that secures a home mortgage or a bank account, a letter of credit, or some other account of value. Lenders will usually advance credit for a percentage of the value of the asset , not 100% of its value. Requiring collateral reduces risk for the lender—if the loan cannot be repaid, the lender would seize the collateral and sell it to recoup their investment.

Table of Contents

What Is Additional Collateral?
Understanding Additional Collateral
Common Types of Collateral
After-Acquired Collateral
澳洲幸运5开奖号码历史查询:FAQs
The Bottom Line

Additional Collateral: What It Is, How It Works, Types

By

澳洲幸运5开奖号码历史查询:Lucas Downey

Updated March 08, 2024

Reviewed by

Chip Stapleton

Fact checked by

Amanda Jackson

Definition

Collateral is an asset that can be sold to recoup a lender's investment. Additional collateral is when the loan requires more than just the property being purchased to secure it.

What Is Additional Collateral?

Additional collateral refers to additional assets put up as collateral by a borrower against a 澳洲幸运5开奖号码历史查询:debt obligation. If a🔴 loan canno🐲t be secured solely by the property being purchased, then additional collateral will be required.

Key Takeaways

When creditors require additional assets as collateral against debt obligations, it is called additional collateral.
A lender may ask for additional collateral to appease investors or a credit committee.
After-acquired collateral is requested after a loan agreement has already begun.

Understanding Additional Collateral

Additional collateral is used to lessen the risk that the lender takes on when issuing a loan. There are several reasons creditors might require further collateral. A lender may ask for additional collateral in order to appease 澳洲幸运5开奖号码历史查询:investors or a credit committee.

澳洲幸运5开奖号码历史查询:Collateral is property or another asset that a borrow♊er offers as a way for a lender to secure the loan. If the borrower defaults on a loan, the lender would have the right to seize the collateral in an attempt 🍷to pay off the remaining debt.

Since collateral offers some security to the lender should the borrower fail to repay the loan, loans that are secured by collateral typically have lower interest rates than unsecured loans. For a loan to be cꦅonsidered secure, the value of the collateral must meet or exceed the amount remaining on the loan. Offering additional 𒁃collateral can help a borrower qualify for more favorable interest rates.

Sometimes 澳洲幸运5开奖号码历史查询:creditors require additional collateral to keep a given loan at a constant interest level. If the lender provides additional funds on top of an already existing loan, then more collateral might also be required. Additional collateral can include cash, 澳洲幸运5开奖号码历史查询:certificates of deposit (CDs), equipment, stock, or letters of credit.

Tip

While having additional assets put up as collateral may mean a lower interest rate on your loan, you'll also have more to lose should you fail to repay your debt. Consider working with a debt relief company or credit counseling agency if you're struggling to make your loan payments.

Common Types of Collateral

One of the most well-known forms of collateral is mortgage collateral. For a mortgage, the collateral is the house purchased with the funds from the mortgage. If payments on the debt cease, the lender can take possession🧸 of the house through a process called fo♛reclosure.

Once the property is in the lender’s possession, the lender can sell the property to get back the remaining principal on the prior loan. The lender’s claim to the borrower's collateral (in this case, the house) is called a lien.

Additio🌊nal Collateral and After-Acquired 𒁏Collateral

Sometimes a 澳洲幸运5开奖号码历史查询:lending institution requires more collateral than the borrower can put up to have more security for the loan. In this case, the borrower agrees to pledge all future property up to a certain amount as additional collateral for the loan. A lender may take additional collateral for a loan after the borrower and lender have already entered into a loan agreement, which is sometimes referred to as 澳洲幸运5开奖号码历史查询:after-acquired property. When a borrower has insufficient collateral for a loan but will be acquiring additional assets in the near term, a lender may choose to issue the loan anyway. Then when ღthe borrower receives those assets, they would be automatically collateralized.

What Is a Secured Loan?

A secured loan is a loan that has collateral attached. Collateral is typically an asset that can be liquidated to repay the loan. Collateral for a mortgagꦦe is usually the home that the loan is purchasing. A car loan may be secured by the vehicle purchased.

What Is Collateral?

Collateral is an item of value that is used to secure a loan. Collateral can be a tangible item, such as a house that secures a home mortgage or a bank account, a letter of credit, or some other account of value. Lenders will usually advance credit for a 澳洲幸运5开奖号码历史查询:p👍ercentage of the value of the asset, not 100% of its value. Requiring collateral reduces risk for the lender—if the loan cannot be repaid, the lender would seize the collateral an𒊎d se🤡ll it to recoup their investment.

What Can I Use as Collateral?

Collateral can be any valu🐓able asset. One of the most common types of collateral is real esta🃏te, but you may also use equipment, artwork, valuables, bank accounts, letters of credit, or stock. Your lender will have a preferred form of collateral.

The Bottom Line

All secured loans require collateral, but some require more than others. Additional collateral may help you secure a lower interest rate or a loan that you might not have qualified for otherwise.

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