A collar is the contractual agreement on an upper and lower interest rate limit in relation to a nominal principal amount. If the reference interest rate exceeds the contractually agreed interest rate cap, the seller pays the difference between the reference interest rate and the interest rate cap to the buyer of the collar. If the reference interest rate falls below the agreed interest rate floor, the buyer of the collar must reimburse the seller for the difference between the reference interest rate and the floor. The purchase of a collar enables the borrower to fix his interest costs with a fixed interest rate ceiling. At the same time, he undertakes to pay a minimum interest rate.