Collateral (finance)

Collateral in finance is an asset or property that a borrower offers to a lender as security for a loan. If the borrower fails to repay, the lender has the right to seize and sell the collateral to recover the owed amount. Common collateral includes real estate, vehicles, or valuable assets. Using collateral reduces the lender's risk, often allowing the borrower to access better loan terms or lower interest rates. Essentially, it acts as a guarantee that the loan will be repaid, providing reassurance to the lender.