What "collateral" means in finance

Collateral refers to an asset or property that is pledged as security for a loan. It is an important part of many financial transactions, such as mortgages, car loans, and business loans. The lender can take possession of the collateral if the borrower fails to repay the loan or defaults on the terms of the loan. The value of the collateral is typically based on its market value, and it can be used to offset the lender's losses in the event of a default. Examples of collateral include real estate, vehicles, stocks, and other assets.