Definition of Primary Collateral for a Loan

A home can be the primary collateral for a mortgage.

Collateral is the physical property a lender can claim if a loan defaults. Primary collateral on a loan is the first thing the lender will claim in the case of a default.

Types

Nearly any asset can be used as primary collateral including, but not limited to, real estate, automobiles, securities, savings accounts and jewelry.

Features

The asset placed as primary collateral will be the most expensive collateral on the loan. If the asset is not worth enough to cover the loan's cost, the lender may require subordinate collateral.

Example

For example, with a mortgage, the home itself will be the primary collateral. If the borrower does not have enough to provide a down payment for the home, secondary collateral in the form of another asset may be required to extend a large mortgage.

Warning

If you place an asset down as collateral on a loan, whether it is primary or subordinate, it can be seized in the case of a default. Never place an asset as collateral that you would be entirely opposed to surrendering.

Alternatives

You may seek an unsecured loan, meaning no collateral at all is required. In this case, no primary or subordinate asset must be put down and placed at risk. However, the loan terms may be less affordable to compensate for greater risk on behalf of the lender.

References

• LegalWiz: Subordination of Collateral