C is for Collateral
C is for COLLATERAL
Definition: money or property that a borrower provides to a lender as part of the terms of a loan. The specific money or property can be physically delivered, like in a pawn shop, or pledged through an agreement, like a mortgage.
Collateral protects the lender by offering ownership of something of value should the borrower fail to live up to their loan promise. Loans with collateral are referred to as “secured debt,” and loans without as “unsecured debt.”
Real life example: your friend will lend you her favorite DVF dress for a wedding — but she has possession of your Wii until the dress is returned to her in dry cleaning plastic.
The Billfold ABCs is a new feature that translates financial language into understandable concepts. Using real life examples alongside definitions and illustrations, the Billfold ABCs explains the words that we associate with money.