What term refers to something you pledge to a lender in case of payment failure?

The term that refers to something you pledge to a lender in case of payment failure is collateral. Collateral serves as a form of security for the lender, ensuring that they have a means of recouping their losses if the borrower defaults on their loan obligations. By securing the loan with an asset, such as property or vehicles, the lender mitigates the risk associated with lending money.

When a borrower provides collateral, it not only assures the lender of some recourse in the event of non-payment but may also lead to more favorable loan terms, such as lower interest rates, since the lender is less exposed to risk. Understanding the concept of collateral is essential for managing loans and financial obligations, as it plays a crucial role in creditworthiness and financial planning.