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What does collateral mean when you take out a loan?
Learn about lender security and how to speed up the loan process.
The collateral facts
- Collateral provides lenders with security and borrowers with lower interest rates.
- If a borrower doesn’t repay a loan on time, the lender can claim the assets the borrower offered as collateral.
Why collateral is important.
An unsecured loan (a loan made with no collateral) exposes the lender to more risk of losing their money, so the interest rates are often much higher. But with collateral, the lender feels safer making the loan, so they can offer the borrower a better interest rate. The borrower benefits from the collateral-secured loan because they get the cash they need — to pay debts or make important purchases — without having to sell their property to get cash.