Question

Why do lenders ask for'collateral'while lending ? Analyse the reasons.

Answer 1

Lenders ask for collateral while lendingbecause if payment of interest and repayment of the principal are not made on time, the lenders can sell the collateralassest and recover their money.

Answer 2

Lenders ask for collateral because : 

(i) It acts as a proof that a loan has been taken from the lender. 

(ii) It secures the lender in case the borrower do not return the money with interest. 

(iii) The collateral helps the lender in getting back his money with interest.