________ is an asset that the borrower owns and uses as a guarantee to a lender, until the loan is repaid.

The correct answer is Collateral.

Key Points

• Collateral
  • An asset that the borrower owns and uses as a guarantee to the lender until the loan is repaid is called collateral.
  • Collateral is a type of security that banks take from their clients.
  • The collateral can be in the form of fixed deposits, property papers etc.
  • The collateral reduces the risk to the lenders.
  • If a borrower defaults on the loan, the lender can seize the collateral and sell it to cover his loss.
  • Mortgage and car loans are two types of collateralized loans.
  • Other personal assets, such as a savings or investment account, can be used to secure a collateralized personal loan.