Collateralization

Pronunciation: /ˈkəɫeɪtˈɹɑˈɫɪzˈætˈaɪˌɑn/

Collateralization (noun)

  1. The act of giving an asset as security so a lender can take it if a borrower does not repay.
  2. A method used to lower risk by linking a promise to pay with valuable property that can cover losses.

Examples

  • Collateralization protects the lender by securing the loan with assets.
  • The bank requires collateralization before approving the loan.