Subordination (finance)

Subordination in banking and finance refers to the order of priorities in claims for ownership or interest in various assets.

The priority of right to collect the debt is important when a debtor owes more than one creditor but has assets of insufficient value to pay them all in full at the time of a default.

Earlier mortgages or other liens are often subordinated by their holders to later ones in order to accomplish agreed-upon ends.

The motivation is either the belief that improvement of the land will benefit the first lender or that the first mortgage requires that it be subordinated to a future construction loan.

In the automotive financing industry, many dealerships are allowed to designate personal loans which are payable to the ownership as subordinable debt.