Collateral

Collateral is an asset that is pledged by the borrower to the lender in order to protect the lender against the default of the borrower. The asset is pledged until the loan is paid back. In the event of the borrower being unable to repay the principal and interest in respect of the loan, i.e. a default, the lender has the right to seize the asset and sell it to pay off the loan or limit the overall loss from default. The various types of collateral include immovable assets (e.g. real estate), goods (e.g. farm products), intangibles (e.g. documents of entitlement), and other assets such as life insurance policies, etc.

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