Which financial term refers to property that secures a loan?

Which financial term refers to property that secures a loan?

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

Answer: (B)

The financial term that refers to property that secures a loan is collateral. Collateral is an asset that a borrower offers to a lender to secure a loan. It serves as a form of protection for the lender in case the borrower defaults on the loan. If the borrower fails to meet the repayment conditions, the lender has the right to seize the collateral to recoup their losses. This can include various types of property, such as real estate, vehicles, or other valuable items. Understanding collateral is crucial because it plays a significant role in lending agreements. Lenders typically assess the value of the collateral and often require it to be worth more than the loan amount to mitigate their risk. This concept is foundational in banking and finance, as it helps facilitate borrowing while reducing the lender's exposure to potential losses.

The financial term that refers to property that secures a loan is collateral. Collateral is an asset that a borrower offers to a lender to secure a loan. It serves as a form of protection for the lender in case the borrower defaults on the loan. If the borrower fails to meet the repayment conditions, the lender has the right to seize the collateral to recoup their losses. This can include various types of property, such as real estate, vehicles, or other valuable items.

Understanding collateral is crucial because it plays a significant role in lending agreements. Lenders typically assess the value of the collateral and often require it to be worth more than the loan amount to mitigate their risk. This concept is foundational in banking and finance, as it helps facilitate borrowing while reducing the lender's exposure to potential losses.