What Does Collateral Mean?

The term Collateral has different meanings - simultaneous, alongside, parallel, accompanying and like wise to name a few.

Collateral is also most popular in financial terminology. It is an asset, pledged as a security to the creditor. A debtor thus borrows finance against such a collateral. In case the main asset is falling short or has a risk involved with recovery process a collateral asset is attached to measure up. Debtor's other assets, such as car or bank balance is also attached as collateral. It can be later added up in case the hypothecated asset fails to measure up for the paying up of the debt.

Usually, property deeds, inventory, warehouse receipts etc are taken as collaterals.