What is collateral?[CBSE 2014]

Collateral is an asset which is a property of a borrower of loan such as – land, building, livestock, deposits with bank etc. The borrower uses this ‘asset’ as a guarantee to the lender (the one who gives money) until the loan is repaid by the borrower.

NOTE – Collateral is a part of the terms and conditions set by the lender i.e. the one who gives loans as a security. If the borrower of the loan fails to repay the amount, then the lender has the right to sell the collateral i.e. the asset in order to obtain the money of repayment.