Definition of Collateral value:
Collateral value is one of the key aspects considered by lenders when reviewing applications for secured loans. In a secured loan, the lender has the right to obtain ownership of a particular asset—called the "collateral" of the loan—in the event that the borrower defaults on their obligation. In theory, the lender should be able to recover all or most of their investment by selling the collateral. Therefore, estimating the value of that collateral is a key step before any secured loan is approved.
Estimated or appraised value of an asset pledged as a collateral to obtain a loan. Lenders base collateral value on the assets liquidation (fire sale) value and not on its actual cost, book value, or even its current market value.
The term collateral value refers to the fair market value of the assets used to secure a loan. Collateral value is typically determined by looking at the recent sale prices of similar assets or by having the asset appraised by a qualified expert.
How to use Collateral value in a sentence?
- Various methods are used to estimate collateral value. These can include reviewing comparable transactions, relying on tax assessments, and consulting with subject-matter experts.
- This value is often used by lenders to estimate the level of risk associated with a particular loan application.
- Collateral value refers to the amount of assets that have been put up to secure a loan.
Meaning of Collateral value & Collateral value Definition