YOU ASK:
What is the definition of Collateral?
WE ANSWER:
Collateral is the asset or property that you provide in order to secure a loan. This asset may be seized and becomes the property of the lender when the borrower fails to pay the loan. In most cases, lenders do not give out the loan unless you have collateral to back it up. This makes a loan a secured loan.
There are times when the loan being secured is for the collateral being assigned. This is true for home mortgage loans (where the borrower tries to get money to buy a house and uses that house as collateral) as well as in businesses (where the borrower uses his accounts receivable and business inventory as collateral). This is what is called asset-based lending.
Collateral is also called security.
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