What is collateral?
Collateral refers to an asset that a borrower offers as security for a loan. The asset is usually in the form of property, such as a car or house. If the borrower defaults on the loan, the lender can seize the collateral and sell it to recoup the money that is owed. For the borrower, collateral provides a way to obtain a loan without having to put up cash upfront.
What is collateral security?
Collateral security refers to an asset that is used to secure a loan. The asset can be something of value, such as property, cash, or shares. If the borrower fails to repay the loan, the lender can seize the collateral and sell it in order to recoup their losses. Collateral security can be an effective way to obtain a loan, but it also comes with some risks.
Why do lenders ask for collateral while lending?
collateral gives the lender a way to recoup their losses if you default on the loan. Without collateral, the lender would have no way to get their money back if you failed to repay the loan. In addition, collateral can help to offset the risk of lending money. Lenders are more likely to approve a loan if they know that they have some form of security in case of default.