When you take out a loan, you need to provide collateral. In case you fail to service your loan, the collateral can become the property of the bank. The bank will then try to sell the property and recover the money you have failed to pay. When you take a home loan, the home being purchased itself is the collateral. In the case of car loans, the car being purchased is the collateral. In certain education loans, the borrower may need to give something else as collateral like a property. Some loans have no collateral. These loans are usually of a very low value or carry a very high-interest rate or a mix of both.

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