What Is Collateral?

In order to secure a loan, a borrower may have to put up collateral. Collateral is a valuable item that the borrower agrees to give the lender if they fail to repay their loan. If the loan goes into default, the lender has the right to seize that item. For example, in order to secure a large bank loan, you might have to put up your house as collateral. That means that if you fail to repay the loan, the bank can take your house.