Collateral is an asset that a borrower pledges to a lender as security for a loan. If the borrower defaults, the lender can seize the collateral to recover the loan amount.

Common forms of collateral include real estate (for mortgages), vehicles (for auto loans), and inventory or equipment (for business loans). Collateralized loans often have lower interest rates because they're less risky for lenders. Lenders may place a lien on collateral for a secured loan.