Collateral is an important requirement for the loan. Collateral is an asset that the borrower owns. The collateral can be anything that has monetary value in it. The bank demands the collateral for the guarantee against their repayment for the credit. The lender uses that collateral as a guarantee for that which borrower will repay the amount in future. If the borrower fails to repay the loan, the lender has the right to sell the collateral to obtain the compensation. Collateral can be land, building, gold, vehicle or anything of value owned by the borrower. The requirement of collateral for taking loans from institutional sources makes it impossible for the poor to take loans from banks and other institutions. Thus they have to rely on other sources.
