Collateral security is any property movable or immovable property offered for securing a loan. A form of secondary protection sometimes required by a bank and intended to guarantee borrower’s performance on a debt obligation. The primary security on a substantial business loan is typically the thing that is being financed, such as a factory, company car or shipment, but secondary or collateral security might also be requested by a bank to help assure that the loan will be repaid. It helps to acquire the loan on an affordable rate of interest and thus helps you to manage it with ease. It is a separate obligation attached to another contract, to guaranty its performance.
Collateral security means extra security which becomes effectual only in the event of the loan not being paid when it becomes due. It can be a residential property, a commercial property, a vehicle and so on. It is not taken in retail loans in a normal course like housing loan, car loan, personal loan etc. For instance, margin loans almost always require collateral. Frequently the collateral is the securities involved in the margin loan.