Question

Any physical possession a creditor is allowed to take over if a debtor fails to pay a loan back is called _______.

1) leverage
2) a line of credit
3) collateral
4) compensating balance
5) a trade credit

Answer 1

Collateral is any physical possession that a creditor can take over if a debtor fails to pay back a loan. It is often property or equipment that the lender can seize and sell to recover the loan amount.

Step-by-step explanation:

Collateral is any physical possession that a creditor is allowed to take over if a debtor fails to pay back a loan. It is often property or equipment that the lender can seize and sell to recover the loan amount. Examples of collateral can include a car, real estate, or even inventory for a business loan.