______ is property required by a lender and offered by a borrower as a guarantee of payment on a loan.

Collateral is a crucial concept in lending transactions. It refers to the asset or property that a borrower pledges to a lender as security for a loan. This arrangement is designed to protect the lender’s investment; if the borrower fails to repay the loan as agreed, the lender has the right to take possession of the collateral to recover some of the losses incurred from the default.

In the context of loans, collateral provides a sense of security for lenders, as it reduces their risk. Common examples of collateral include real estate, vehicles, or other valuable assets. The value of the collateral typically needs to meet or exceed the amount of the loan, ensuring that the lender can recuperate their financial exposure.

Understanding the role of collateral is essential in personal financial management, as it impacts loan approval and terms. For instance, borrowers with significant collateral may have access to lower interest rates or larger loan amounts, while those without sufficient collateral may face higher borrowing costs or difficulties in obtaining financing.