Collateral
Definition
Collateral is an asset that a borrower offers to a lender to secure a loan.
Benefits
Using collateral can lower interest rates because it lowers the risk for lenders. It also allows borrowers to get larger loans.
Frequently Asked Questions
What is a collateral asset? A collateral asset is something of value, like a house or car, used to secure a loan. If the loan isn`t paid back, the lender can take this asset.
What type of asset is a secured loan? In a secured loan, the asset could be real estate, a vehicle, or investments. These assets back up the loan.
What is a loan without collateral? A loan without collateral doesn`t require an asset for security. It`s based on the borrower`s creditworthiness and may have higher interest rates.
Summary
Collateral is a key part of many loans. It offers security to lenders and helps borrowers get better loan terms.