Cross-Collateralization
An arrangement where collateral pledged for one loan also secures another loan or line of credit, linking the two obligations together.
With cross-collateralization, a default on one loan can put collateral tied to a different loan at risk too, since the same asset (or assets) is backing multiple obligations rather than each loan having its own separate, independent collateral.
Understanding whether a new loan is cross-collateralized with existing financing is important, since it can change the real risk profile of taking on additional debt beyond what the new loan’s own terms suggest.
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