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Glossary Term

Collateral

The asset a lender can claim if payments stop — usually the equipment itself.

All glossary terms

In short

Collateral is the asset a lender can repossess if you stop making payments. In equipment financing, the equipment you're buying is typically the collateral, which is why you often don't need to pledge outside security.

Why equipment financing is 'self-secured'

Because the financed asset backs the loan, equipment financing is generally easier to approve than unsecured borrowing:

  • The truck, trailer, or machine secures the deal — no need to pledge your home or other assets in most cases.
  • The lender registers a security interest (see PPSA) until the balance is repaid.
  • Lower lender risk often means better rates and terms than unsecured options.

What it means for you

Using the equipment as collateral keeps your other assets and credit lines free. It also means the lender's recovery is limited to the asset, so approvals lean heavily on the equipment's value and your ability to make payments. Keeping the asset in good condition protects its value — and your standing on the deal.

Common questions

Do I need to put up my house or savings as collateral?

Usually not. In most equipment deals the equipment itself is the collateral, though a personal guarantee may still be required.

What happens to the collateral when I finish paying?

The lender releases its security interest (the lien), clearing the asset's title so you own it free and clear.

General information only. This page is educational and does not constitute financial, legal, or tax advice. All financing is subject to credit review and lender approval. Rates, terms, and eligibility vary by applicant, asset, and lender, and are not guaranteed. Any figures or examples are illustrative. Please speak with a qualified advisor about your specific situation.