NCERT · Class 10 · Social Science · Economics: Money and CreditWhat is meant by collateral in credit arrangements?

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 money. It provides security to the lender and is widely demanded by banks and formal financial institutions before sanctioning loans.