Loans & credit
Collateral
Also known as: Security
An asset you pledge against a loan that the lender can take if you fail to repay.
Collateral is something valuable, like property, gold, or fixed deposits, that backs a loan.
It reduces the lender's risk, which is why secured loans have lower interest rates.
If you default, the lender can legally seize and sell the collateral to recover their money.
For example
In a gold loan, your jewellery is the collateral. Miss enough payments and the lender can auction it to recover the loan.