What is Collateral
Collateral is a form of assurance that protects a lender in case a borrower is unable to repay his debt. It is an object of some value that can be claimed by the lender if the borrower fails to pay his obligations.
Collateral can be of various sorts depending on the type of the loan. For a mortgage loan, the collateral is the house purchased with the loan. In margin trading, the collateral is the contents of an investor’s trading account.
If a loan is backed by collateral, the borrower usually would pay lower interest rates