In a typical loan agreement, what does the borrower pledge as collateral?

In a typical loan agreement, the borrower pledges real estate as collateral. This means that the property itself serves as security for the loan. If the borrower fails to repay the loan as agreed, the lender has the right to take possession of the real estate through a legal process known as foreclosure. The value of the real estate helps mitigate the lender's risk, as they can recover their investment by selling the property if necessary.

In contrast, while income and credit scores can influence a lender's decision to approve a loan and determine its terms, they are not used as collateral in the same way that real estate is. Assets might refer to various financial or personal belongings, but they do not provide the same level of security associated specifically with real property. Thus, real estate is the most common form of collateral in a loan agreement, linking the loan directly to a physical asset.