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Collateral
Collateral is an asset pledged or otherwise provided to support a loan or financial obligation. If the borrower fails to meet the agreed obligations, the lender may have rights relating to the collateral according to the terms and applicable law.
Why it matters to you
Collateral can reduce a lender's potential loss, but it does not eliminate lending risk. Investors need to understand what the collateral is worth, how easily it could be sold and whether the lender's rights to it are legally enforceable.
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