collateralization

Collateralization is a process where a borrower offers an asset—like property, stocks, or cash—as security for a loan. If the borrower defaults, the lender can take ownership of the collateral to recover the owed money. This reduces the lender’s risk and often allows the borrower to access better loan terms, such as lower interest rates. Essentially, collateral acts as a safety net, giving the lender confidence that the loan will be repaid or they can seize assets if not.