Collateral is an asset you pledge to back a loan, which the lender can take if the loan is not repaid. A house backs a mortgage and a car backs an auto loan or a title loan.
Collateral is property you offer as security for a loan, giving the lender a claim on that asset if the debt is not repaid as agreed. By reducing the lender's risk, collateral can support larger loan amounts or different terms, but it remains pledged until the loan is paid off. Common examples include real estate securing a mortgage, a vehicle securing an auto loan, and a vehicle title securing a title loan. A loan backed by collateral is a secured loan, and the lender's claim on the asset is often recorded as a lien. A loan that requires no collateral is an unsecured loan, such as a signature loan.
