Additional Collateral

AAA

DEFINITION of 'Additional Collateral'

Additional assets put up as collateral by a borrower against debt obligations. Additional collateral is used to lessen the risk to the lender. Creditors might require extra collateral in order for a given loan to remain at a constant interest level, or to appease investors or a credit committee. Such collateral might include cash, certificates of deposit, equipment, stock or letters of credit.

INVESTOPEDIA EXPLAINS 'Additional Collateral'

Collateral is commonly used when securing loans as a way to increase the likelihood of repayment. If the borrower defaults on a loan, the lender would have the right to acquire the collateral in an attempt to pay off the remaining debt. If additional funds are lent, then more collateral might also be required.

For example, if a lender requires that a $2,000 asset be pledged as collateral for a $10,000 loan, the $2,000 asset is considered collateral. If at some point additional funds are required or the lender feels that the borrower has become too risky, then additional collateral might be needed (if the contract allows it).

VIDEO

Loading the player...
RELATED TERMS
  1. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  2. Bad Paper

    Unsecured short-term fixed income instrument that is issued either ...
  3. Borrowing Base

    The amount of money a lender will loan to a company based on ...
  4. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  5. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  6. Overcollateralization - OC

    The process of posting more collateral than is needed to obtain ...
RELATED FAQS
  1. Are mortgage-backed securities backed by any guarantees?

    Actually, any mortgage-backed security (MBS) guarantee depends on who issued it. To review, an MBS is a security, created ... Read Full Answer >>
  2. How can I use quantitative analysis to evaluate investment decisions if I don't have ...

    While there are a few legitimate companies advertising that they can consolidate credit card debt, most are illegitimate ... Read Full Answer >>
  3. What are some common models that practitioners use in quantitative analysis of equity ...

    Credit cards can be a helpful component in reaching a financial goal or financing some of life's bigger expenses. Carrying ... Read Full Answer >>
  4. How can I use the correlation coefficient to predict returns in the stock market?

    Simple interest is most commonly seen in short-term loans, such as those from payday lenders or pawn shops. You might see ... Read Full Answer >>
  5. What is the difference between secured and unsecured debt?

    The difference between secured and unsecured debt is the presence or absence of collateral backing. Secured Debt For a debt ... Read Full Answer >>
  6. What are some examples of debt instruments?

    Individuals, businesses and governments use common types of debt instruments, such as loans, bonds and debentures, to raise ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Promissory Notes: Not Your Average IOU

    These may be a handy way to borrow money, but this convenience does not come without risk.
  2. Retirement

    Getting A Loan Without Your Parents

    Use the 5 "W"s to finance your dreams without banking on a second signature.
  3. Options & Futures

    Home-Equity Loans: The Costs

    Learn the factors to consider when comparing the different programs offered by various lenders.
  4. Personal Finance

    Why Are Mortgage Rates Increasing?

    Learn how the secondary mortgage market and investor demand affect the cost of home ownership.
  5. Credit & Loans

    What is an Unsecured Loan?

    An unsecured loan is based on the creditworthiness of the borrower, and has no collateral securing the loan.
  6. Retirement

    The Purpose Of Having A Social Security Number

    When (and why) it is necessary to use the nine-digit number the United States government issues to individuals and when you should avoid it.
  7. Retirement

    Steps To Replace Or Update Your Social Security ID

    Investopedia's step-by-step guide to filling out the form that gets you a new or replacement Social Security card.
  8. Credit & Loans

    The Pros & Cons Of Personal Loans vs. Credit Cards

    One is not like the other. We help you decide where to borrow money from.
  9. Entrepreneurship

    What Is Microlending And How Does It Work?

    Microlending can produce great return on investment for the lender while benefiting borrowers who wouldn't otherwise secure funding.
  10. Credit & Loans

    Borrowing From LendUp: Better Than A Payday Loan?

    A new alternative to conventional payday loans is being offered in 16 states. How much better for consumers is LendUp really? Read on for details.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center