Q1 of 26 Page 3

Why do banks ask for collateral while giving credit to a borrower? (CBSE 2011)

Collateral is a guarantee to the bank so that if the borrower fails to repay the loan, the bank can sell the collateral and obtain the amount.

Explanation: Collateral is a reassurance to the banks because, without collateral, the bank has no way to get back the money in case of failure of repayment.

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