NCERT · Class 10 · Social Science · Economics: Money and CreditWhat are collateral requirements for a loan?

Collateral is an asset that the borrower owns, such as land, building, vehicle, livestock, or deposits with banks, 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 recover the due amount. Lenders demand collateral to ensure safety against default, making it a critical requirement for securing formal loans.