A loan contract with collateral is a legally binding agreement between two or more parties, comprised of a lender and borrower, that stipulates the terms of a loan. This agreement requires the borrower to provide the lender with an asset as security for the repayment of the loan. Should the borrower default in fulfilling the terms of payment, the lender is entitled to take possession of the asset used as collateral, up to the amount necessary to settle any outstanding debt. In this manner, loan contracts with collateral can be a great way to protect both lenders and borrowers in ensuring that debts are paid according to the agreement.