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Placeholder Lesson:
** This lesson is generated with AI assistance and approved by Danny Nelson. This lesson will communicate the essence of the topic for now until Danny can create a full lesson. **
Collateral is an asset or property that a borrower pledges to a lender as security for a loan or credit.
It serves as a form of protection for the lender, ensuring they can recover their funds by seizing and selling the collateral if the borrower defaults on repayment.
Common examples of collateral include real estate, vehicles, stocks, or valuable personal items.
The value of the collateral is typically assessed to match or exceed the loan amount, reducing the lender's risk.
In financial contexts, using collateral can lead to better loan terms, such as lower interest rates, for the borrower.