Collateral

Collateral – An item of value put up by a borrower that is used as security for a loan. In a mortgage, the home is the collateral for the loan.

  • Example: A lender requires a borrower to put up collateral to protect themselves if the borrower does not repay the loan. In a mortgage, the home serves as collateral and will be taken back by the lender if the borrower defaults.
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