Collateral is an asset that a lender accepts as security for extending a loan.
If the borrower defaults on her loan payments, the lender may seize the collateral and sell it to recoup some or all of his losses.
How does a collateral loan work?
You can secure the loan by offering some form of collateral in return, known as a collateral loan, or a secured loan. You can also borrow without any collateral to back the loan, known as an unsecured loan. With a secured loan, the lender can take possession of the asset if you’re unable to pay the loan back.
What kinds of things can be used as collateral for a loan?
Obvious forms of collateral include houses, cars, stocks, bonds and cash — all things that are readily convertible into cash to repay the loan. Some of those assets are “hard,” such as houses and automobiles; others are “paper,” such as stocks and bonds.
What is an example of a collateral?
Collateral is an asset or piece of property that a borrower offers to a lender as security for a loan. And, the borrower is more likely to repay the loan if they know they could lose their collateral. Unsecured loans do not use collateral. An example of unsecured lending is a business credit card.
What do you mean by collateral in case of a loan?
DEFINITION of ‘Collateral’ Collateral is a property or other asset that a borrower offers as a way for a lender to secure the loan. If the borrower stops making the promised loanpayments, the lender can seize thecollateral to recoup its losses. A lender’s claim to a borrower’scollateral is called a lien.