Five Types of Collateral for Loans

Collateral provides lenders with security if a borrower fails to meet a loan agreement. Any asset owned by a borrower that can be pledged to help a lender recover their investment is referred to as collateral. According to Yieldstreet experts, collateral helps borrowers secure capital for investments or large purchases.

Here are five types of assets that can serve as collateral.

Real Estate: Common in real estate transactions, the property being purchased often serves as loan security. The lender technically becomes the owner until the loan terms are met. This arrangement is known as a consensual lien.

Accounts Receivable: Some retailers use their accounts receivable as collateral to secure capital before invoices mature, also known as invoice factoring. When the invoice is paid, the lender receives the funds first, followed by the retailer.

Cash: Any loan with a down payment is collateralized. The down payment funds serve as the lender's security. In case of default, the cash and the item are surrendered to the lender.

Investment Accounts: Stocks, bonds, and other securities can be used as collateral. If the loan defaults, the lender takes ownership of the pledged securities. Some investors leverage their holdings to acquire new investments.

Collectibles: Valuable items such as artwork, cars, and watches can also serve as collateral due to their liquidity.