Collateral is an asset that a borrower owns like a house, property, gold, shares, etc. The owner can use this collateral to take loans from the banks. It is used as a guarantee by the owner, if the owner is unable to repay the loan, the bank has the right to sell his collateral and recover the loan amount. For example- Mr.A needs a loan of Rs. 500000 he can use his house as collateral and take a loan from a bank. On repayment, he can take back his property from Bank.