Collateral is anything of value that can be taken by the lender if you do not pay back the loan. Loans that are granted based upon collateral are called “secured loans” (like a home mortgage or car note). The lender wants to identify property owned by the borrower which has a value at least equal to the amount of the loan so that the property can be used to pay back the debt if you are unable to repay the loan. If the collateral’s value is not worth equal to or more than the amount of the outstanding debt, the lender may seek a deficiency judgment against you for the difference. There is another type of loan called an “unsecured loan” which does not require collateral but is based on the user’s ability to pay (like credit cards or student loans).