In banking and loans, the property pledged by a borrower to protect the interests of the lender is called "collateral." Collateral serves as security for the lender in case the borrower is unable to repay the loan. If the borrower defaults on the loan, the lender can seize and sell the collateral to recover the amount owed.
Examples of collateral can include assets like a car, a house, stocks, bonds, or even valuable items like jewelry. The type of collateral required can vary depending on the loan amount, the lender's policies, and the borrower's creditworthiness.
Having collateral provides a level of assurance to the lender, which can result in lower interest rates or a higher likelihood of loan approval for the borrower. It helps mitigate the lender's risk and ensures that there is a way to recover the loan amount in case of default.
