Collateral

Collateral is any asset of value — real estate, securities, gold, or fixed deposits — pledged to the lender to secure a loan. It acts as a guarantee, reducing lender risk. If the borrower fails to repay, the lender can seize and liquidate the collateral.

Secured loans (home loans, LAP, LAS) require collateral. The loan amount is typically a percentage of collateral’s value (LTV ratio). Unsecured loans don’t require collateral but have higher interest rates.

The choice between secured and unsecured depends on amount needed, urgency, and willingness to pledge assets.

Collateral directly impacts loan eligibility, interest rates, and amount. Secured loans backed by collateral offer better terms, but borrowers risk losing pledged assets on default.