When someone buys a car or a house, a loan usually must be made. If your credit is good and you’re willing to put 10 to 20% down, a lender will gladly make you a loan for the rest and use the car or house for collateral. This way both parties will share the risk. The property must also be insured at all times. If the loan isn’t repaid, the lender will be able to repossess the property and recoup the remaining loan balance. Without the collateral aspect, these loans could not be made. Lenders don’t want your car or your house and would much rather you repay the loan. Because of these factors home and auto loans can be quite low, and they should always be worth at least what is owed. It’s really quite simple and collateral greatly reduces the loan risks.