Many of you already know that collateral is an asset or property that a borrower offers to a lender to secure a loan. Remember, if the borrower cannot repay the loan, the lender has the right to take the collateral as repayment. Common types of collateral include houses, cars, and other valuable items. Collateral reduces the lender’s risk, which often helps borrowers get better loan terms or lower interest rates. Using collateral makes a loan “secured,” meaning it is backed by the pledged asset.