Collateral

A borrower’s pledge of a security or guarantee, usually an asset such as property, for the repayment of a loan if the borrower fails to repay the loan in full. The collateral serves as protection for a lender against a borrower’s risk of default. If a borrower does default on a loan due to insolvency or other event that borrower forfeits the property pledged as collateral and the lender then becomes the owner of the collateral, which can then be liquidated.

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