Finance glossary
Collateral
Definition
An asset pledged to secure a loan.
Collateral is property a borrower pledges that the lender can seize if the loan is not repaid, reducing the lender risk. A house secures a mortgage; a car secures an auto loan. Secured loans backed by collateral usually carry lower interest rates than unsecured ones.
In a sentence
He pledged his car as collateral, which the lender could seize if he stopped paying.
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