Collateral Value

Loading the player...

What is a 'Collateral Value'

A collateral value is the estimated fair market value of an asset that is being used as loan collateral. Collateral value is determined by appraisal from a qualified expert. If publicly traded securities are being used, then the current price of the securities is the collateral value. However, marketable securities are subject to the margin requirement restrictions mandated by the Federal Reserve Board.

BREAKING DOWN 'Collateral Value'

In most cases, the amount of the loan given will not exceed the collateral value of the assets, and will usually be less than its fair market value. This is because most lenders will assess collateral property at its fire-sale value and not its actual cost or current value. This is for both the borrower's and lender's protection.

RELATED TERMS
  1. Cross Collateralization

    The act of using an asset that is currently being used as collateral ...
  2. Advance Rate

    The maximum percentage of the value of a collateral that a lender ...
  3. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  4. Non-Recourse Debt

    A type of loan that is secured by collateral, which is usually ...
  5. Borrowing Base

    The amount of money a lender will loan to a company based on ...
  6. Security Agreement

    A document that provides a lender a security interest in a specified ...
Related Articles
  1. Credit & Loans

    What Is Collateral?

    Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup ...
  2. Trading Strategies

    How Does Securities Lending Work?

    Securities lending is the act of loaning a stock or other security to an investor or firm.
  3. Home & Auto

    What Is A Mortgage?

    A mortgage is a loan used to purchase a home, where the property serves as the borrower's collateral.
  4. Investing Basics

    A Primer On Collateralized Debt Obligation (CDOs)

    A collateralized debt obligation, or CDO, is a structured financial product backed by a pool of loans. When a retail or commercial bank approves loans such as mortgages, auto loans or credit ...
  5. Credit & Loans

    What are the Five C's of Credit?

    The five C’s of credit are what banks and other lenders evaluate about a potential borrower when making a lending decision. The five C’s are Character, Capacity, Capital, Collateral and Conditions. ...
  6. Mutual Funds & ETFs

    Securities Lending: Cause Of The Next Financial Crisis?

    Securities lending can pose risks to investor's portfolios and the entire financial system.
  7. Investing

    What is Debt Financing?

    When a company needs to pay for something, it can pay with cash, or it may finance the purchase. Financing means that it gets the money from other businesses or sources, in return for obligations. ...
  8. Stock Analysis

    Find The Right Discount Rate Amid Post-2007 Risks

    OIS discounting has become part of standard valuation techniques, in a market in which there is more uncertainty and less proxies for the risk-free rate.
  9. Credit & Loans

    Contrasting Non-Recourse And Recourse Loans

    The difference between a recourse and non-recourse loan involves how aggressively a lender can pursue a borrower who defaults on the loan.
  10. Personal Finance

    What You Should Know About Home Appraisals

    Home appraisals are an unbiased way to determine a home's value. Here is what you need to know about obtaining one.
RELATED FAQS
  1. What is the difference between asset-based lending and asset financing?

    In the most common usage, the terms "asset-based lending" and "asset financing" refer to the same thing. Asset-based lending ... Read Answer >>
  2. When did people first start using collateral to secure loans?

    Read about the history of lending and collateral, including a time when an entire nation was pledged as collateral for all ... Read Answer >>
  3. What is the difference between secured and unsecured debts?

    Learn the differences between secured and unsecured debt; discover how banks buffer risks associated with each type of loan ... Read Answer >>
  4. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  5. What is the difference between a collateralized mortgage obligation (CMO) and a collateralized ...

    Both collateralized mortgage obligations (CMOs) and collateralized bond obligations (CBOs) are similar in that investors ... Read Answer >>
  6. What is the difference between economic value and market value?

    Learn about the differences between economic value and market value. Discover how they serve different purposes for businesses ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center