Collateral
COLLATERAL
Collateral is anything accepted as security for a loan. It works like this: when a lender loans money to someone, the borrower is obliged to repay the loaned sum. But, in addition to a spoken or written promise to repay, a lender often demands some collateral (such as property) so that if the borrower fails to repay, the lender will at least have the collateral. For example, if a borrower put up his or her home as collateral and then failed to repay the loan, the lender has the right to take the house. Other common types of collateral include stocks and bonds. (The borrower does not necessarily have to give the collateral to the lender until a loan is repaid. It is sometimes enough that the lender has the legal right to take the collateral if the borrower defaults on his or her obligation.)