What Is Collateral?

By RealtyCrunch IncApril, 27th 2020
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What Is Collateral?

Collateral is an asset that a lender accepts as a security for a loan. To minimize the risk, the collateral acts as a form of protection for the lender to minimize the risk.

In real estate, the lender accepts the home, apartment, building or land as collateral. If the terms of the loan are not met and the borrower defaults, the lender has the right to take ownership of the home through legal proceedings and sell it off to recoup the loan.

In some states the lender holds onto the title of the property until the loan is fully repaid, at which point it is turned over to the borrower and the home owner.