a loan for which a specific asset is used as collateral or pledged
Collateral (finance) The protection that collateral provides generally allows lenders to offer a lower interest rate on loans that have collateral compared to those without collateral because the risk of loss to the lender is lower. The reduction in interest rate can be up to several percentage points, depending on the type and value of the collateral. For example, the interest rate (APR) on an unsecured loan is often much higher than on a secured loan or logbook loan, as the risk for the lender is then increased.