What is colateral?

Collateral refers to an asset pledged by a borrower to secure a loan or credit, which the lender can seize if the borrower fails to repay the loan. Common forms of collateral include real estate, vehicles, or savings accounts. By using collateral, borrowers may receive more favorable loan terms, such as lower interest rates, since it reduces the lender's risk. If the borrower defaults, the lender can claim the collateral to recover their losses.