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To offer an asset as a surety that a debt will be repaid. The asset may be kept by the lender until the debt is repaid, or the borrower may maintain possession with the proviso that the lender may take possession of the borrower defaults. For example, one collateralizes a mortgage loan with the real estate one purchases with the loan. If the loan is not repaid, the lender has the right to seize the real estate in question. See also: Lien.
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To pledge an asset as security for a loan. A loan to a broker is collateralized by pledging securities.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.