What is the term for personal property that guarantees a loan?

What is the term for personal property that guarantees a loan?

• A. Asset
• B. Equity
• C. Collateral
• D. Guarantee

Answer: (C)

Collateral refers to specific personal property that a borrower offers to a lender to secure a loan. It acts as a form of protection for the lender; if the borrower fails to repay the loan, the lender has the right to seize the collateral to recover some or all of the outstanding debt. This makes collateral a crucial component in many lending agreements, particularly in cases such as mortgages or auto loans, where the collateral typically involves the property being financed. In contrast, the other terms have different meanings. An asset is a broad category referring to anything of value owned by a person or business. Equity denotes ownership in an asset after all debts related to that asset are paid off. A guarantee, on the other hand, refers to a promise by a third party to fulfill the borrower’s obligation if they default, but it does not involve specific property being pledged as security for the loan. Therefore, the term that most accurately represents personal property used to secure a loan is collateral.

Collateral refers to specific personal property that a borrower offers to a lender to secure a loan. It acts as a form of protection for the lender; if the borrower fails to repay the loan, the lender has the right to seize the collateral to recover some or all of the outstanding debt. This makes collateral a crucial component in many lending agreements, particularly in cases such as mortgages or auto loans, where the collateral typically involves the property being financed.

In contrast, the other terms have different meanings. An asset is a broad category referring to anything of value owned by a person or business. Equity denotes ownership in an asset after all debts related to that asset are paid off. A guarantee, on the other hand, refers to a promise by a third party to fulfill the borrower’s obligation if they default, but it does not involve specific property being pledged as security for the loan. Therefore, the term that most accurately represents personal property used to secure a loan is collateral.