What is a collateral loan?

2 min read

A collateral loan is a secured loan that allows the borrower to pledge any asset to seek a loan. The loan amount depends on the value of the collateral. This type of loan is relatively risk-free for the lender, as they can liquidate the asset if the borrower defaults. As a result, borrowers can avail of a higher loan amount at a lower interest rate.

Some common assets that can be used as collateral include:

  • Private vehicles
  • Commercial and residential property
  • Machinery and equipment
  • Investments such as fixed deposits, bonds, mutual funds, shares, ESOPs
  • Insurance policies
  • Valuables and collectables
  • Future payments from customers (receivables)

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