What is the difference between primary security and collateral security?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Urmil asked over 2 years ago

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2 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 megha answered over 2 years ago

Hello, here is the answer of your query. > Primary security Primary security is the asset created out of the credit facility extended to the borrower and / or which are directly associated with the business / project of the borrower for which the credit facility has been extended. > Collateral security Collateral security is any other security offered for the said credit facility. For example, hypothecation of jewellery, mortgage of house, etc. > **In Simple Language** Primary security is the security someone offered to a bank to cover any risk the bank faces by granting a credit facility to a borrower. However, sometimes a single security may not be sufficient to cover the risk. **Example**: X bank grants a credit facility of $100 to a borrower called 'B,' and the borrower offers a bare land of $60 to the bank as the security. As you can see, the is bank facing a risk of $40. ************************* To cover up the balance of the credit risk, the borrower needs to offer another security. This new security is known as a collateral security. In that case, any security other than the primary security is a collateral security.

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Balasundaram R C commented 9 months ago

Can ypu provide me which assets can be taken as primary security and collateral security

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Open uri20170510 32134 1c996lj?1494421732 Anil answered over 2 years ago

Hello Sonu, The difference between primary security and collateral security is briefly explaining here. Primary security is the asset created out of the credit facility extended to the borrower for which the credit facility has been extended. Collateral security is any other security other than the primary security offered for the said credit facility. These are the major difference of primary security and collateral security.

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