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Suppose you agree to rent an apartment. The lease agreement you sign with the landlord is the main contract. However, your landlord promises to fix the toilet drainage. Therefore, this is the collateral contract.

A contract for a collateral loan should clearly state what asset(s) are being used to secure the loan and include a clause on what could happen to the asset if the borrower defaults. It should also clearly outline the circumstances under which the collateral could be forfeited to the lender.

What is a collateral agreement? A collateral agreement is an agreement between two or more parties in which each party pledges assets as security for the performance of the other party.

What is a collateral agreement? This agreement will allow a lender ? or the ?Secured Party,? which can be an individual and/or their company ? to take ownership of the property that was used as collateral. This property becomes an instrument the lender uses to recover a part or all of what the borrower was loaned.

It is highly recommended, however, that a complete written agreement is created to avoid confusion and dispute at a later time. See our article on Oral or Written Contracts. The agreement entered into between the parties must evidence the intent of the parties to enter into a joint venture.