Collaterals are the use of assets to secure a loan or other type of financing. Collateral functions as a kind of insurance, protecting the lender from the risk of nonpayment by the borrower. Collateral also provides the borrower with additional leverage to negotiate better loan terms. In short, they are used to reduce the risk associated with lending. When a lender issues a loan, they take on the financial risk that the borrower may not repay the loan as agreed. Collateral helps to reduce this risk by providing a real asset that the lender can seize in the event of default. By offering collateral, the borrower can back up their promise to repay the loan. Lenders are often more willing to extend larger loans or at lower rates if collateral is offered to secure the loan. Collateral can be any asset that has a certain amount of value in the eyes of the lender. Common collaterals for loan and financing agreements include cash deposits, real estate, vehicles, jewelry, and equipment. With the appropriate proof of ownership, documentation or titles, and valuation of the asset, borrowers can use these assets as collateral to obtain funds. Collaterals offer a great way for borrowers to access funds while minimizing the risk they pose to the lender. As a result, lenders are often more willing to offer more competitive terms, higher loan amounts and terms, when the loan is secured by collateral. By having an asset to back up their signature on the loan agreement, borrowers can take advantage of being able to access the funds they need while still protecting the lender in the process.