A borrower gives to creditor a security to grantee repayment of a loan. What is this security called ?
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Answer: C. Collateral
Explanation
Collateral refers directly to the asset pledged by a borrower to guarantee loan repayment. Creditors seize this specified security if the borrower defaults on their financial obligations. Providing collateral reduces the lender risk associated with issuing unsecured consumer or business credit. Lending institutions evaluate collateral value meticulously before approving large commercial or mortgage loans. Common forms of collateral include real estate properties, vehicles, and marketable financial securities. Secured lending agreements legally bind the pledged asset to the underlying debt contract.
Mortgage lenders require residential real estate as collateral to secure long-term home loans. Small business owners pledge equipment and inventory to obtain necessary commercial operating capital. Collateralized agreements make borrowing more accessible by lowering interest rates for applicants. A pledge describes the physical delivery of property, which differs from general collateral definitions. Assurance denotes a promise or confidence rather than a tangible security asset for debt. Guaranty involves a third-party promise to pay rather than the borrower pledging direct asset security.
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