What Is a Collateralized Loan Agreement?

A collateralized loan agreement is the document signed by the borrower of funds pledging equipment or property against the loan in case the borrower cannot repay the amount borrowed.

Secure Loan

A collateralized loan is also called a secure loan, as the pledged property or equipment helps to insure that the lender will not take a loss.

Advantage To The Borrower

A collateralized loan is easier to get and interest rates are generally lower than unsecured loans.

In Case Of Default

In case of default or nonpayment by the borrower, he will be forced to sell off the property to satisfy the debt. The lender may also take part in the sale of the item and any excess money will be refunded to the borrower.

Expected Collateral

This is a type of collateralized that is expected to have value, such as a crop harvest or an investment that is expected to appreciate.

Other Types Of Collateral

Stocks and bonds are often used as collateral. A home is used for collateral on mortgage loans. Jewelry or other personal property may also be used.

References

• What Is A Collateral Loan