Collateral
An asset pledged to secure a loan, subject to seizure if default occurs.
Detailed Description
Collateral
What is collateral?
Collateral is an asset offered by a borrower to a lender to secure a loan, providing protection for the lender in case of default.
What are common types of collateral?
Common types of collateral include real estate, vehicles, cash accounts, inventory, equipment, and stocks or bonds.
How does collateral impact loan terms?
Collateral can lead to lower interest rates and higher borrowing limits, as it reduces the lender's risk.
What is the difference between secured and unsecured loans?
Secured loans require collateral, reducing lender risk, while unsecured loans are based on creditworthiness and typically have higher interest rates.
What happens during collateral release?
Collateral release occurs when a borrower repays their loan in full, allowing them to reclaim their collateral and restore ownership rights.