What is collateral? Why do lenders asks for collateral while lending. Explain

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Solution

Dear Student

A collateral is an asset like land,building or machinery etc . that is owned by borrower and he uses that asset as guarantee to lender until the loan is repaid.
Lenders asks for collateral in case borrower fails to repay the loan within stipulated time, then lender can sell the collateral and obtain his payment.

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