Collateral
Quick Definition
An asset pledged to secure a loan, which the lender can seize if you default.
Full Explanation
Collateral is an asset you pledge to a lender as security for a loan. Common types of collateral in Canada include real estate (for mortgages and HELOCs), vehicles (for auto loans), investments and savings accounts, and business assets. Pledging collateral reduces the lender's risk, typically resulting in lower interest rates and higher borrowing limits. If you fail to repay the loan as agreed, the lender has the legal right to seize and sell the collateral. The value of the collateral must typically meet or exceed the loan amount.
Related Terms
Secured Loan
A loan backed by collateral — an asset the lender can seize if you default.
Mortgage
A secured loan used to purchase real estate, with the property as collateral.
HELOC (Home Equity Line of Credit)
A revolving credit line secured by your home equity, up to 80% LTV.
Default
Failure to make required loan payments as agreed with the lender.
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