The main collateral meaning is an asset, such as a house, car, gold or shares, that a borrower pledges to a lender as security, which the lender may claim when repayments stop. That is the noun, and it is the sense used in banking.
As an adjective, collateral means lying to the side, secondary or indirect. That is why harm that hits people who were not the target is called collateral damage, and why a cousin is a collateral relative. The full meaning of collateral rests on one Latin idea, "side by side."
Entry at a glance
Meaning (noun)
An asset pledged to secure a loanMeaning (adjective)
Side, secondary, indirect; related but not in a direct linePronunciation
kuh-LAT-er-uhlWord forms
collateralize (US) or collateralise (UK), collateralized, collaterallyOrigin
Medieval Latin collateralis, from com- (together) + latus (side)Close words
security, pledge, guarantee; incidental, secondaryRegister
Neutral to formal; heavy use in finance, law and the military
Collateral meaning, sense by sense
- Security for a loan (noun): something of value the lender may seize and sell if you fail to repay. Your home is the collateral for a mortgage.
- Secondary or indirect (adjective): happening alongside the main event, as in collateral effects or collateral benefits.
- Related through a side line (adjective): in family trees and inheritance law, collateral relatives share an ancestor but do not descend from one another; brothers, aunts and cousins are collateral, while parents and children are lineal.
- Marketing materials (noun): brochures, flyers, slide decks and case studies that support sales are called marketing collateral or sales collateral.
- In medicine and anatomy (adjective): on the side, as in the collateral ligaments of the knee, or collateral blood vessels that form a side route around a blockage.
How collateral works in a loan
The definition of collateral matters when you compare loans. Those backed by it are called secured loans: home loans, car loans, gold loans and loans against property or shares. Loans without it, like most credit cards and personal loans, are unsecured and usually charge higher interest because the lender takes more risk. In law, a bank's hold over a pledged item is often a lien, and a home loan is the classic example on our mortgage page.
Lenders rarely lend the full value of the asset. They keep a gap, sometimes called a margin or loan-to-value limit, in case the asset loses value.
Sentences using collateral
- The farmer used his land as collateral for a tractor loan.
- Without collateral, the startup could only get a small unsecured loan.
- Shutting the main road had a collateral effect on every shop in the market.
- Our design team is preparing new sales collateral for the trade fair.
- The estate passed to collateral heirs because the man had no children.
Collateral damage and other set phrases
Collateral damage means harm caused to people or things that were not the intended target. Lawyers were using the phrase by the 1870s; its best-known modern use, a military term for civilian deaths and damage, spread from the late 1960s. Because it softens a grim reality, many people see it as a euphemism. In everyday speech it now also describes anyone hurt by a conflict between others: "Their breakup left their friends as collateral damage."
Other pairings: put up collateral, offer something as collateral, collateral requirements, collateral value, collateral consequences (in law, the side effects of a conviction such as losing a licence) and collateralized loan.
Collateral vs guarantee vs deposit
| Term | What it is |
|---|---|
| Collateral | Property pledged that may be seized on default |
| Guarantee | A promise by another person to pay if the borrower does not |
| Deposit | Money paid upfront, often kept until a deal ends, as with rent |
| Down payment | Your own share of a purchase price, paid at the start |
Borrowing to increase what you can invest is a related idea covered on our leverage page.
From "side by side" to bank vaults
To define collateral by its past: English borrowed it around the late 1300s, through both French and Medieval Latin collateralis, meaning side by side, from com-, together, and latus, side. Early meanings were "accompanying" and "related through a side line of the family." The phrase collateral security, meaning an extra pledge given alongside a debt, appeared during the 1700s. By 1832 American English was using collateral alone as a noun for the pledged property. More money words are listed in our business and finance collection.
Frequently asked questions
What can be used as collateral?
Common examples are a house or land, a car, gold, fixed deposits, shares, bonds, insurance policies with a cash value, and business equipment or stock. The lender decides what it will accept and how much it will lend against it.
Is collateral damage a positive or negative phrase?
Negative. It describes harm to people or things that were not the target. Some people dislike it because it can make serious harm sound minor.
What happens to collateral if I default?
The lender can usually take the asset and sell it to recover the unpaid amount, following the legal process in your country. If the sale brings in more than you owe, the extra may come back to you; if less, you may still owe the rest.
What does collateral mean in marketing?
It means the printed and digital materials that help sell a product or service, such as brochures, product sheets, presentations and case studies.
Which part of speech is collateral?
It works as two. The noun names the pledged asset. As an adjective it means secondary, indirect or related through a side line, as in collateral damage or collateral relatives.
How do you say collateral?
kuh-LAT-er-uhl, four syllables, with the beat on LAT. In fast speech it can sound like three: kuh-LAT-ruhl.