Leoglossary: Collateral

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In finance, collateral is an asset that is put up to secure the loan. The asset is used in case of default where the lender would be able to recoup some of the outstanding balance.

This helps to reduce the risk on the lender's part in case of default. It also helps to show the borrower is not high risk since the collateral serves as a hedge.

With mortgages, the property itself will be used as collateral on the loan.


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