Why do lenders ask for collateral while lending? Explain.
Collateral is a sort of security in the shape of land, building, vehicle, livestock which the borrower gives to the lender until the loan is paid. If a borrower fails to repay the loan amount, the lender has the right to sell the collateral asset to obtain His money. Also, the fear of losing the collateral or asset, makes the borrower more keen to repay the loan amount on time. The default rate on the loans backed by the collateral security is comparatively less and on those which are not backed by any collateral.
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