Define ‘collateral security’. Why do lenders ask for collateral security while lending? Explain.

Collateral security is an asset that the borrower owns such as land, vehicle, livestock, or deposit with the bank, and uses this as a guarantee to a lender until the loan is repaid.

Lenders ask for collateral security while lending because if the borrower fails to repay the loan the lender has the right to sell the collateral to obtain the payment.