👉 Collateral refers to any asset or financial instrument that is used as a security for another asset or financial instrument. This means that if the borrower defaults on one loan, they may have their entire loan obligation forgiven by the lender who provided the collateral. For example, assume you are borrowing money from a bank to buy a house. If the bank fails to pay back the loan, the lender might be able to sell the house and use the proceeds to cover the loan's outstanding balance. The bank would