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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