Why do banks or lenders demand collateral against loans?
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Answer:
because the collateral collected is the main source of income of banks.
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Collateral
Explanation:
A collateral is nothing but an asset which a borrower is required to deposit with, or pledge to, a lender as a condition of obtaining a loan, which can be sold off if the loan is not repaid.
So the bank would demand a collateral if you applied for a loan. The bank will keep the property pledged the bank and the documents will be with the bank. You won't be able to sell off the property until the pledge is released. If you pay off the loan in full, the pledge will be nullified by the bank upon closure of the loan. In case of default, the bank has the authority to sell the pledged property in order to recover the loan amount.
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