In a loan agreement, what is used as collateral to secure the loan?

In a loan agreement, what is used as collateral to secure the loan?

• A. Collateral
• B. Lien
• C. Mortgage
• D. Equity

Answer: (A)

Collateral is the asset pledged to secure a loan. By offering collateral, you reduce the lender’s risk, giving them a claim to the asset if you don’t repay. A lien is the lender’s legal claim on that asset, not the asset itself. A mortgage refers to a loan secured by real estate, where the property serves as collateral, but the term describes the loan type rather than the asset used. Equity is the portion of the asset you truly own after debts are subtracted, not the security pledged. So the asset used to secure the loan is collateral.

Collateral is the asset pledged to secure a loan. By offering collateral, you reduce the lender’s risk, giving them a claim to the asset if you don’t repay. A lien is the lender’s legal claim on that asset, not the asset itself. A mortgage refers to a loan secured by real estate, where the property serves as collateral, but the term describes the loan type rather than the asset used. Equity is the portion of the asset you truly own after debts are subtracted, not the security pledged. So the asset used to secure the loan is collateral.