Side Collateral

“Side collateral” is collateral that doesn’t cover the full amount of the loan we’re trying to secure.

For example, let’s say we’re trying to get a loan for $100,000 so we can buy a wakeboard boat. We don’t have anything worth $100k that we can use as full collateral, so instead, we offer up a necklace we inherited from our great-grandmother that’s worth about $25,000 (it’s a really nice necklace). If we default on the loan, our lender can seize the necklace and sell it to recoup some of their losses. We’ll still be on the hook for the rest of the defaulted loan amount, but at least Great-Grandma Harriet’s necklace can reduce some of the potential financial burden on us if that happens.

And, as is the case with any collateral, side collateral can make it possible to secure a better loan than we could with zero collateral.