Answer:
Collateral
Explanation:
Collateral is an asset that a borrower surrenders to a lender to act as security in loan negotiation. By offering the asset as a collateral, the borrower makes a statement of intent to repay. Motor vehicles, financial assets, houses, and properties are the most common assets used as collateral.
A customer who offers collateral is classified as a low-risk customer. The lender holds onto the asset until the loan is repaid in full. Should the borrower fail to repay, the lender may auction the collateral to recover his money. Collateral reduces the probability of the lender losing money.
Collateral value is always higher than the loan value. The lender can afford to offer low-interest rates as the transaction has a low-risk level.
