Additional Collateral

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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.

BREAKING DOWN '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).

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