Question

Why do banks ask for collateral while giving credit to a borrower?​

Answer 1

Collateral is an asset that the borrower owns (land, building, vehicle, livestock, land documents, deposits with banks, etc.) which stands as a security against the money borrowed. In case the borrower fails to repay the loan, the lender has the right to sell the asset or collateral.

Answer 2

Answer:Collateral is a guarantee to the bank so that if the borrower fails to repay the loan, the bank can sell the collateral and obtain the amount.

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