 TITLE: What Is Collateral? CONTENT: What Is Collateral, and How Does It Work?\n-----------------------------------------\nNo one wants to lose their house or car, which means collateral gives the lender more assurance the borrower will repay the loan on time. Lenders consider loans backed by collateral, called secured loans, a safer bet than those that aren't, called unsecured loans. For that reason, secured loans may be easier to get and generally come with lower interest rates.\nIf you fall behind and can't repay a secured loan, the lender can take the collateral you put up for it. For instance, missed auto loan payments could lead to repossession of your car, which a lender may be able to do without advance warning or court proceedings. Missed mortgage payments could lead to foreclosure, when the lender takes possession of your house.\nYour loan contract will make clear how many missed payments lead to loan default, and at what point the lender has the right to take ownership of the collateral. END