Loading the player...

What is '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.

BREAKING DOWN 'Collateral Value'

Collateral value is often a key determinant in the terms associated with a secured loan. Secured loans are typically made for a specified loan to value amount with the collateral used to secure the loan in case of default.

Secured Loans

Secured loans can be made against all types of property. One of the most common types of secured loans is a mortgage loan secured against a home. Other types of property accepted for secured loans may include car title loans, art, jewelry or securities. 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.

Secured loans are structured in a similar way to other mainstream loans. They include a principal amount and require either fixed or variable interest payments. Secured loans however, like their name, are much more secure for the lender. This can also be advantageous for the borrower in obtaining a lower interest rate.

To begin the application process for a secured loan the borrower must first obtain an appraisal with the estimated fair market collateral value of the property to be considered in the loan. Most secured lenders have established loan to value limits which help to determine the amount they are willing to loan.

Borrowers for secured loans must complete the same loan application procedures as other standard loans. While the collateral value is an important component of the loan, the lender must also receive information on a borrower’s credit profile. A borrower’s credit score and debt to income will also be important factors considered in the loan underwriting process.

Often secured lenders are willing to lend approximately 70% to 90% of a borrower’s collateral value for secured property. This value can vary significantly by lender and for different types of collateral.

Home Loans

Home loans are one of the most common types of secured loan with the title to the property held by the lender until full payment has been made. Large consumer banks such as Bank of America and Citibank are common sources for secured home mortgage loans. These lenders may be willing to lend up to 90% of the appraised collateral value of a home requiring only a 10% down payment.

  1. Loan Stock

    Common or preferred stock shares that are used as collateral ...
  2. Secured Note

    A secured note is a type of loan that is backed by the borrower's ...
  3. Unsecured Loan

    An unsecured loan is a loan that is issued and supported only ...
  4. Lender

    A lender makes funds available with the expectation that the ...
  5. Call Loan

    A call loan is a loan that the lender can demand to be repaid ...
  6. Borrowing Base

    The amount of money a lender will loan to a company based on ...
Related Articles
  1. Personal Finance

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
  2. Investing

    Commercial real estate loans

    Obtaining a commercial real estate loan is quite different from borrowing for residential real estate. Here's what to expect and how to get what you need.
  3. Managing Wealth

    When Are Personal Loans a Good Idea?

    You never want to borrow money for frivolous reasons, but these five circumstances might warrant it.
  4. Small Business

    Using Collateral to Obtain a Loan for Your Small Business

    Learn what assets can be used as collateral for an asset-based loan, and find out best practices when seeking asset-based lending.
  5. Personal Finance

    8 Top Alternatives to Car Title Loans

    Before you sign up for a car title loan, investigate these 8 alternate strategies.
  6. Managing Wealth

    Hard Money Loans: Know This Tool for Real Estate Investors

    A hard money loan may be a faster route to financing than a bank loan. But be sure you understand the possible consequences before you take one on.
  7. Investing

    Financing Basics For First-time Homebuyers

    If you're looking to get your first mortgage, there are many financing options available.
  8. Personal Finance

    The 4 Worst Ways To Borrow Money

    While there are less risky places from which to borrow, there are also predatory lenders who can make your financial situation worse than it was to begin with.
  9. Investing

    Cash Flow Lending Vs. Asset-Based Lending

    When companies need financing, they rely on two primary forms of lending: cash flow-based and asset-based lending. We look at the pros and cons of each.
  10. Personal Finance

    Personal Loans: To Lend Or Not To Lend?

    Attempting to help a loved one with a cash loan can put a strain on your relationship - and your bank account.
  1. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
Trading Center