Legal Definitions - collateral loan

A collateral loan is a type of secured loan where the borrower pledges an asset as collateral to the lender. This means that if the borrower fails to repay the loan, the lender can seize the asset to recover their losses. Collateral loans are often used to obtain larger loan amounts or lower interest rates.

For example, if a person wants to buy a car but doesn't have enough money, they can take out a collateral loan using the car as collateral. If they fail to repay the loan, the lender can repossess the car to recover their losses.