Question

what do you understand by collateral ? why it is considered necessary ?​

Answer 1

Collateral

• Collateral is an item of value used to secure a loan.
• Collateral minimizes the risk for lenders.
• If a borrower defaults on the loan, the lender can seize the collateral and sell it to recoup it's losses.
• Mortgages and car loans are two types of collateralized loans.
• Other personal assets, such as a savings or investment account, can be used to secure a collateralized personal loan.

Hope it helps you.

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Answer 2

What Is Collateral?

The term collateral refers to an asset that a lender accepts as security for a loan. Collateral may take the form of real estate or other kinds of assets, depending on the purpose of the loan. The collateral acts as a form of protection for the lender. That is, if the borrower defaults on their loan payments, the lender can seize the collateral and sell it to recoup some or all of its losses.