What Does Collateral Mean
In lending agreements, collateral is a borrower's pledge of specific property to a lender to secure repayment of a loan. The collateral serves as protection for a lender against a borrower's failing to pay the principal and interest under terms of the loan agreement. When a bank or credit union makes a loan for a car, truck, or motorcycle, they have a security interest in the vehicle. This gives them the right to take back, or repossess, the vehicle if a payment is late.