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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Collateral

Definition:

Stuff that you offer to the person lending you money so that if you miss a payment and default on your debt obligations, the lender has something that can be sold to satisfy the debt.

Example

You forget your wallet when you go to McDonald's. You leave your cell phone there while you drive home to get your wallet. That cell phone is collateral; McDonald's is holding on to it to be sure you don't run off without paying. (We're guessing that phone is worth more than your Big Mac.)