Aval

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DEFINITION of 'Aval'

A guarantee added to a debt obligation by a third party who is not the payee or the holder, but who ensures payment should the issuing party default. The debt obligation could be a note, bond, promissory note, bill of exchange or draft. The third party providing the aval is usually a bank or other lending institution.

INVESTOPEDIA EXPLAINS 'Aval'

Since avals can be forged, caution should be taken when accepting these notes. Banks usually only provide an aval to issuers with very good credit ratings. An aval might be used to guarantee the payment of a buyer to a seller.The process of avalizing is performed mainly in Europe; in the United States, banks have restrictions as to what instruments may be provided an aval.

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RELATED FAQS
  1. Are U.S. banks authorized to issue bank guarantees or medium term notes (MTNs)?

    Bank guarantees and medium term notes (MTNs) are different types of instruments that serve different purposes for corporations. ... Read Full Answer >>
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