← GlossaryBanking
Collateral
Collateral is an asset pledged against a loan, such as a house for a home loan, a car for a car loan or gold for a gold loan. Because the lender can sell it if the borrower defaults, secured loans usually carry lower interest rates than unsecured ones.
Why It Matters
Collateral is why a gold loan costs far less than a personal loan.
In India
Millions of Indian households pledge jewellery for gold loans, which can be approved in under an hour because the gold itself secures the loan.