Which one of the following options describes ‘Collateral’?

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Asset as a guarantee for loan

answer is D.

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Detailed Solution

Asset as a guarantee for loan describes 'Collateral'. A borrower's purchase serves as a guarantee to a lender until the loan is repaid. If the borrower defaults on the loan, the lender has the right to sell the asset or collateral to recover payment. Land titles, bank deposits, livestock, and other forms of collateral security are examples of collateral security used for borrowing. Typically, the bank will require you to put your house up as collateral. This implies that if you don't pay your mortgage on time, the bank has the authority to seize possession of your home. The bank will then be able to sell your house to recuperate the money it lent you. Even if the borrower does not return the loan as promised, collateral works as an assurance that the lender will get the amount granted.

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