An asset pledged to secure a loan, which the lender can seize if you default.
A home secures a mortgage; a car secures an auto loan. Secured loans (with collateral) carry lower rates than unsecured ones (personal loans, credit cards) because the lender’s risk is lower.
Example: Defaulting on a mortgage allows the lender to foreclose on the home used as collateral.
FAQ
What is Collateral in simple terms?
A home secures a mortgage; a car secures an auto loan. Secured loans (with collateral) carry lower rates than unsecured ones (personal loans, credit cards) because the lender’s risk is lower.