Which of the following explanation defines collateral loans?
1
Collateral is an asset that the lender owns and uses this when the borrower cannot repay the loan.
2
Collateral is an asset that the borrower sells to repay the compound interest charged by the lender.
3
Collateral is an asset that the borrower owns (such as land, building, vehicle, live stocks, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid.
4
Collateral is an asset that the borrower gives the lender as a thanksgiving.