Collateral (finance)

Collateral is like a toy that you give to your friend to borrow until they give it back to you. So, when you want to borrow money from a bank or a lender, they might ask you for something to make them feel better about giving you the money. Just like your friend might ask you to give them a toy that they can keep until they give your toy back to you.

This is where collateral comes in. Collateral is something valuable that you promise to give to the bank or lender if you can't pay them back the money you borrowed. Just like how you promise to give the toy to your friend if they don't give your toy back to you.

For example, let's say you want to borrow $100 from a bank. The bank might ask you for some collateral, like your bicycle or your video game console, that is worth at least $100. If you don't pay back the $100 that you borrowed from the bank, the bank can take your bicycle or video game console and sell it to get their money back.

Overall, collateral is something valuable that you promise to give to the bank or lender if you can't pay back the money you borrowed. It's like giving a toy to your friend as a promise that they will give you your toy back after they're done playing with it.