Collateral Bond

Definition - What does Collateral Bond mean?

Collateral bond refers to the act of borrowing money with the borrower offering an asset or a property as a security measure for the lender. If the borrower fails to pay the debt on time, the lender acquires the asset or property that the borrower put up as collateral.

Insuranceopedia explains Collateral Bond

Many bonds come with collateral attached to them. The collateral provides compensation to the lender should the borrower fail in their financial obligation. The value of the collateral either matches or exceeds the value of the bond, and it can be a commercial building, a house, a vehicle, or any other valuable property.

For collateral trust bonds, securities, such as shares of company stocks, are offered as the collateral. If the borrower fails to pay, the lender can sell the stocks to recoup their losses.

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