KEYTAKEAWAYS
Explore the concept of security (collateral) in lending, where assets serve as safeguards for lenders in case borrowers default on loans.
CONTENT
DEFINITION
Security (Collateral): Safeguarding Lender Interests in Loan Agreements
Security, interchangeably referred to as collateral, represents property or assets provided by a borrower to a lender as a protective measure. In the context of lending and financial agreements, security acts as a guarantee that the lender can claim and assume ownership of these assets in the event that the borrower fails to meet the repayment obligations of a loan. This arrangement safeguards the interests of the lender by offering a tangible resource they can recover to mitigate potential financial losses.
The type of assets or property accepted as security may vary, encompassing real estate, vehicles, financial instruments, or any valuable items of agreed-upon worth. The utilization of security in loan agreements is common in both personal and business lending and serves to minimize risk for lenders and borrowers alike.
