DEFINITION of 'Bottomry'

When the owner of a ship borrows money and uses the ship itself (referring to the ship's bottom
or keel) as collateral. If the ship is lost during the course of the voyage then the creditor will lose
on the loan; if the ship survives, the lender will receive the principal plus interest.

BREAKING DOWN 'Bottomry'

The interest received by the lender on a bottomry loan is referred to as "maritime interest", and
can be higher than the legal rate of interest. Unlike a typical loan in which the borrower is liable
for the debt at all times, a bottomry contract makes the lender liable for the loan because it will
not receive money if the ship is lost.