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

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. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  5. Collateralization

    The act where a borrower pledges an asset as recourse to the ...
  6. Overcollateralization - OC

    The process of posting more collateral than is needed to obtain ...
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. Investing

    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 through the process of securitization, in which the underlying assets ...
  6. Credit & Loans

    What is the difference between APR and APY?

    Learn about the difference between the calculations for APR and APY. APY takes into account the number of times that the interest rate is applied on an amount.
  7. Credit & Loans

    Do lenders offer floating APRs?

    Learn about credit cards with floating, variable and fixed APRs. Explore introductory rates offered by two leading credit card issuers.
  8. Credit & Loans

    Why do some credit cards offer introductory APRs?

    Understand how introductory APRs from credit card companies can help or hurt your personal finances. Learn how to use these offers to your advantage.
  9. Credit & Loans

    Are APRs different in different countries?

    Learn about the term APR and how it is used in the United States and other countries. Explore why different lenders charge different APRs.
  10. Credit & Loans

    What loans do and don't have an APR?

    Learn about what annual percentage rates (APR) are and what they mean. Explore different fixed and variable APRs charge by different lenders.

You May Also Like

Hot Definitions
  1. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  2. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  3. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  5. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  6. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
Trading Center