The reasons why collateral is important to a borrower are:
- It serves as borrower's credit worthiness .
- Collateral minimizes the risk for lenders.
What is Collateral?
Collateral can be regarded as item of value that is been used to secure a loan.
In a case whereby a borrower defaults on the loan,it is possible for lender to seize the collateral and sell it to recoup its losses. Banks require collateral on certain types of loans.
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