Why do lenders ask for ‘Collateral’ while lending? Analyse the reasons

CBSE Class 10 CBSE Class 10 Social Science
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1

Why do lenders ask for ‘Collateral’ while lending? Analyse the reasons.

2

COLLATERAL is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid.

  • If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.
  • Lender can recover from the sale of such an asset. It may be a land title, a house deed, fixed deposits with the banks.