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An asset that a borrower offers a lender to secure a loan.
The best example of collateral is your home when you take out a mortgage. The lender let you borrow money because, in the event you default, they can recoup losses by seizing and selling your home. In the same way, your car is collateral for an auto loan. Collateral isn’t always the item being bought. For example, in margin trading investors borrow money to buy assets using other investments as collateral.
Related Links
Investopedia article on collateral
Dictionary.com article
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