An
asset that a
borrower transfers to the possession of a
lender as
collateral for a
loan. The borrower maintains
ownership and all associated rights of the pledged asset. When the loan is
repaid, the lender transfers possession back to the borrower. The pledged asset reduces the
risk to the lender that the borrower will
default, therefore possibly qualifying the borrower for some benefit, such as a lower
interest rate. When
buying a house, some
mortgage borrowers will pledge an asset, such as
stock, to the lender to qualify for a lower
down payment. See also:
Secured loan.