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You must have collateral when taking out a loan.
If you fail to repay your loan, the collateral will become the bank’s property. The bank would also attempt to auction the property in order to recoup the money you owe.
When you take out a mortgage loan, the house you’re buying serves as insurance.
In the case of car loans, the collateral is the vehicle being bought.
In certain education loans, the borrower will be required to have additional collateral, such as a property.
Some loans do not need collateral. This loans usually have a relatively low value or a very high interest rate, or a combination of both.