This article is playful look at the origin, etymology, and psychology, of the word ‘collateral’. The article is intended to be a humorous and poetic dig at the word that has become central to our discussions, and as a historical reference to deepen our understanding. Of course, one of the underlying primary goals we work towards on a daily basis is increasing your equity, reducing your loan in the lowest possible time, and building wealth through your various property strategies, and our debt reduction methods are central to this end.
From the Latin collateralis, meaning “side by side,” collateral is a word that offers a peculiar sense of security while harbouring a dark, underlying threat. It is the pawn that is placed beside the loan, standing in as a guarantee for the promise of repayment. On the surface, collateral is a simple concept: it is something of value — your house, your car, your assets — offered up in good faith to assure the lender that the borrower will fulfil their obligation. But beneath this surface lies a far more complex and troubling reality. Collateral is not just security; it is a hostage.
Unlike the borrower, who is tied to the loan by the invisible threads of credit and repayment schedules, collateral is a tangible entity, one that stands in the way of a potential disaster. It is an object — a home, an investment, a car – that is at once a symbol of personal success and a target for seizure. The moment the borrower defaults or falls short of their obligation, that collateral is no longer a mere pledge; it becomes a bargaining chip in a high-stakes game, held hostage by the very promise it was meant to guarantee.
In the world of finance, collateral exists in a paradoxical space. It is meant to reassure both borrower and lender: the borrower feels secure, knowing that the lender will be satisfied if they fail to meet their repayment obligations, and the lender feels protected, knowing that the collateral acts as a financial safety net. However, this security is inherently fragile. Collateral is only as secure as the borrower’s ability to uphold their end of the bargain. And in the event of failure, the borrower faces not just financial ruin but the loss of something personal, something valued, something once seen as a symbol of achievement.
When you place collateral alongside a loan, you are offering up more than just a piece of property; you are surrendering a part of your life. That home, that car, that investment, is not merely an object — it is a piece of your identity. It is what you’ve worked for, what you’ve sacrificed for, what you’ve built. And yet, in the event of default, it can be ripped away from you, its value stripped down to the cold, indifferent calculation of market price. The collateral becomes something far more sinister: it is a hostage, held in the custody of the loan, and the only ransom is the fulfillment of your financial promise.
The symbolism of collateral extends beyond the financial transaction itself. It reflects the broader dynamics of control and power inherent in debt. The lender holds the power over the borrower not just through money, but through the very assets that define the borrower’s life. Your home — your sanctuary, your personal space — can, in the eyes of the lender, become a mere piece of property, a thing to be taken, to be seized in the event of default. In this light, collateral is a constant reminder of the power asymmetry that exists in the world of finance. You, the borrower, are never truly free as long as you are in debt. Your assets, your collateral, are always at risk, held hostage by the terms of your loan.
This relationship—where one party’s survival is contingent on the other’s success or failure — has profound psychological implications. Collateral is not just a financial instrument; it is a psychological one as well. The borrower may go to great lengths to protect their collateral — maintaining their payments, sacrificing other aspects of their life, in a desperate bid to retain what they value. The fear of losing collateral can be a powerful motivator, driving individuals to push themselves beyond their limits, even when the burden of the loan becomes unbearable. The hostage is a symbol of both the potential for success and the ever-present threat of failure, and the borrower becomes entangled in this tension.
The very concept of collateral serves as a reminder of the fragility of ownership. In a world where financial obligations loom large, our sense of security is always at risk. Collateral, rather than representing stability, highlights the instability of ownership in a world governed by financial transactions. What we think of as ours — the house we live in, the car we drive — can, under the right circumstances, be stripped away in a moment of financial distress. Ownership is no longer about possession; it is about control, and that control is always subject to the terms of a loan.
Perhaps the most unsettling aspect of collateral is its inherent ability to dehumanize. When we think of collateral, we often think of property, not people. But in reality, the objects that serve as collateral are deeply tied to the borrower’s life. A home is not just a house; it is a life’s work, a family’s memories, a sanctuary. And yet, in the world of finance, it is treated as just another asset, to be taken and sold when the borrower fails to meet their obligations. This process strips away the emotional, personal significance of the collateral, reducing it to a mere object to be liquidated. In this way, the act of using collateral in a loan is not just a financial transaction; it is a deeply dehumanizing process, one that places the borrower’s most cherished possessions at the mercy of the lender’s authority.
In the end, collateral serves as both a promise and a threat. It is a guarantee that the borrower will uphold their end of the bargain, but it is also a reminder that failure to do so will result in the loss of something personal, something irreplaceable. Collateral may be a means of securing a loan, but it is also a psychological anchor, a hostage to the lender’s power. It is an object that exists in a constant state of tension, held side by side with the loan, a silent reminder that what you value most can be taken away from you in an instant, should you falter.
