Collateral or security may be used to secure the repayment of a loan. It is usually a tangible asset, such as a vehicle or other asset worth the equivalent of the loan itself.
If the borrower defaults on their loan payments, the lender can go to court to foreclose the collateral to remedy their loss. Collateral is typically used when a significant amount of money has been lent, there is a high chance the borrower may default, or where the lender is also selling the collateral to the borrower.