What is a security pledged for the repayment of a loan called?

A security pledged for the repayment of a loan is referred to as collateral. Collateral serves as a form of assurance for the lender that if the borrower fails to make the required loan payments or defaults on the loan, the lender has the legal right to take possession of the collateral to help recover the outstanding debt. This arrangement reduces the risk for the lender, as they have a tangible asset they can claim in case of a default.

In financial transactions, collateral can take various forms, such as real estate, vehicles, or cash deposits. This practice is common in secured loans, where the borrower's obligation to repay is backed by a specific asset. Using collateral generally allows borrowers to secure better loan terms, such as lower interest rates, due to the reduced risk involved for the lender.