Collateral is a financial asset that the lender can accept as security for a loan
Furthermore, the collateral minimises the risk for the lender as they can seize it to pay for the loan amount if the borrower fails to repay the loan. The lender determines whether the borrower has the ability to repay the loan before lending the amount. Hence, they ask for some form of collateral.
What is Collateral?
Collateral can be described as a financial asset possessed by the borrower that can act as security for the lender. Hence, if you wish to borrow a loan for any purpose, you must be able to pay some collateral or security to the lender.
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