Collateralize

To provide an asset or property as collateral to secure a loan or financial obligation, ensuring that the lender has a claim to the collateral in the event of the borrower's default. This financial mechanism is intended to protect lenders from potential losses.

Collateralize meaning with examples

• When securing a mortgage, the homeowner must collateralize the loan with the property itself, ensuring the lender can reclaim the house if payments are missed. This practice provides a layer of security for both parties in the transaction.
• In the case of business financing, entrepreneurs often need to collateralize their loans with equipment or inventory, presenting something tangible to reassure lenders of the repayment likelihood. The assets serve as a safety net for the financial institution.
• Investors in the corporate bond market may require firms to collateralize their debts with company assets, shouldering risk while enabling the business to secure needed capital for growth. This strategy not only protects investors but can also lower borrowing costs.
• During economic downturns, banks may tighten their lending practices, making it essential for borrowers to collateralize loans more rigorously. Individuals seeking personal loans have found that offering collateral significantly boosts their chances of approval.