Collateral

Collateral is an asset that a borrower offers to a lender as security for a loan. It acts as a form of protection for the lender, ensuring that if the borrower defaults on the loan, the lender can seize the collateral and sell it to recoup the outstanding loan amount. Common types of collateral include real estate, vehicles, savings accounts, stocks, and other valuable assets.

The use of collateral reduces the lender’s risk, which often results in more favorable loan terms for the borrower, such as lower interest rates or higher loan amounts.