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Security

Definition of 'Security'

In credit terms, security is something you give a lender which the lender can sell if you fail to pay.

Security is usually formally executed, such as a mortgage over a property, an assignment of a life policy, or a charge over credit balances. Security can also be informally given, which simply means that the ownership documents are given to the lender without a formal security document being executed. The lender then acquires a ‘lien’ over the item deposited – an equitable charge.

Companies may be asked to give a mortgage debenture over its assets as a form of security. Amongst other things this usually gives the lender the ability to appoint a receiver to run the company if things get really bad.

One form of security that doesn’t involve the depositing of assets, either informally or formally, is a guarantee. A guarantee is a promise by another party to pay if you don’t. The person giving the guarantee is called a guarantor. The guarantor may be asked to lodge other forms of security (such as a mortgage over a property) to support the guarantee.

In theory, secured finance should cost less than unsecured finance, as the lender has less risk, but the cost of taking the security is always borne by the borrower and this can be a significant cost.

Use the links below to locate the term you are looking for. If you can't locate it, please get in touch.

Credit Jargon Starting 'G'

Credit Jargon Starting 'I'

Credit Jargon Starting 'J'

Credit Jargon Starting 'L'

Credit Jargon Starting 'M'

Credit Jargon Starting 'S'

Credit Jargon Starting 'T'

Credit Jargon Starting 'V'

Credit Jargon Starting 'W'

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