What term refers to property owned by an individual that can be used to secure a loan?

What term refers to property owned by an individual that can be used to secure a loan?

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

Answer: (A)

Collateral is the asset a borrower offers to a lender to secure a loan. If the borrower can’t repay, the lender can take ownership of that asset to recover the debt, which lowers the lender’s risk and can lead to better terms for the borrower, such as a lower interest rate or a larger loan amount. The asset must belong to the borrower and can be real property like a house or land, or personal property like a car, valuable possessions, or a savings balance. This is different from a lien, which is the lender’s legal claim against the asset; a mortgage is a loan secured by real estate; and equity is the portion of the asset’s value that the owner actually owns free of debt, not the asset pledged to secure the loan.

Collateral is the asset a borrower offers to a lender to secure a loan. If the borrower can’t repay, the lender can take ownership of that asset to recover the debt, which lowers the lender’s risk and can lead to better terms for the borrower, such as a lower interest rate or a larger loan amount. The asset must belong to the borrower and can be real property like a house or land, or personal property like a car, valuable possessions, or a savings balance. This is different from a lien, which is the lender’s legal claim against the asset; a mortgage is a loan secured by real estate; and equity is the portion of the asset’s value that the owner actually owns free of debt, not the asset pledged to secure the loan.