We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Are the Different Types of Collateral Assignment?

Malcolm Tatum
By
Updated: May 17, 2024
Views: 7,014
Share

Collateral assignment is a term used to describe the pledging and temporary transfer of ownership rights to a lender in return for the granting of a loan. Once the loan is paid in full, those rights revert to the debtor, and the lender no longer has a claim on those assets. Various types of collateral may be accepted by a lender, depending on the nature of the loan and the type of assets a given borrower has to offer. This in turn means there are a few different types of collateral assignment that may take place.

One of the more common examples of collateral assignment involve the pledging of real estate, and the temporary transfer of ownership rights to the lender. For example, if a borrower wishes to use a loan to purchase some type of recreational property like a cabin at a lake, the lender may accept the borrower’s primary residence as the collateral for the loan, and require that ownership rights be transferred to the lender for the duration of that loan. In practical terms, this means the borrower will continue to be responsible for the pledged property, including the payment of any property taxes that come due. In addition, the property cannot be sold without the express permission of the lender, although in most cases the borrower can lease or rent the property without having to seek permission from the lender.

Another example of collateral assignment involves the use of the cash value of a life insurance policy. In this scenario, that cash value is pledged as the collateral on the loan. In the event that the borrower should pass away before the loan is paid in full, the proceeds from the life insurance policy are used to retire that debt. Any amount remaining from the life insurance benefits are then passed on to the beneficiaries.

In any form, collateral assignment involves transferring ownership rights to a lender for the duration of a loan period. Typically, the borrower still has use of the asset and remains the owner of record. All responsibilities connected with that ownership are still retained by the borrower, and he or she can make use of the asset with little to no restrictions. As long as the loan payments are tendered on time, the lender will usually not attempt to exert any type of control of the asset pledged; only in the event of a default will the lender exercise the right to seize full control of the asset, settle the amount of the defaulted loan, then forward any remaining revenue from the sale of that asset to the borrower.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Editors' Picks

Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.wisegeek.net/what-are-the-different-types-of-collateral-assignment.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.