Collateral is also commonly known as security as collateral is something that offers security to the lender and is provided by the borrower.
What can be Used as Collateral?
Generally, a number of assets can act as collateral. Depending on the size and purpose of the loan, the collateral may differ.
In the case of a mortgage, the house acts as the collateral. For auto loans, the car itself is the collateral. As each the house and vehicle are being put up as collateral against the loan, the lender needs to see that there is sufficient insurance in place when financing their purchase. The lender needs to know that they can collect on amounts owing (typically through resale or foreclosure).
The terms “security” and “collateral” are interchangeable with “security” being more commonly used in UK and “collateral” being more common in North America.
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