What is collateral?
Collateral, simply put, is something of value that you pledge when you borrow money. It may represent the whole value of your loan, or it may simply represent a significant percentage of the loan's value, depending on the loan's terms.
Collateral can literally be anything that's relatively easy to liquidate but tends to be whatever it is that you're borrowing to buy. This keeps the whole transaction nice and tidy, so if you default on the loan for your car, for example, the bank can take the same car, which was your collateral, and sell it to recapture the remaining balance on the loan.