Lenders ask for collateral while lending because if the payment of interest and payment of principal are not made on time then in that case the lenders can sell the collateral assets and recover their money. Collateral is used as a kind of mortgage when someone borrows money in bulk from the bank and in that case he has to assure the bank that its debt will be paid on time by him but if in case he couldn’t then bank can sell that collateral and recover the money lent to that customer.