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  1. Bankruptcy Glossary
  2. Collateral

What is Collateral?

There is a wide variety of assets which can be considered collateral in various financial situations. For instance, a home, which is one of the most common purchases, can be bought with a mortgage and the home is held as collateral for the duration of the loan period. If a lender gives the borrower a loan to purchase a home, the lender retains interest in the home until the mortgage or loan is repaid by the homeowner. After the homeowner pays the balance of the mortgage to the lender, the lender considers the debt obligation concluded and the lender has no claim to the home. Although a home is one of the most common types of collateral, other types can include vehicles, jewelry and securities.

Basically any type of asset that the lender is willing to accept as payment for the loan can be considered collateral and can provide the lender with a sufficient guarantee that they will recover the amount they have loaned either through the loan payments or by repossessing the collateral.