A collateral security agreement is a sort of legal contract which establishes a relationship between two or more parties for a financial transaction generally a loan. In such transactions when a party extends a loan to the borrower, the borrower is required to pledge some valuable asset that belongs to him as the security interest for the loan known as collateral.
This kind of collateral security agreement establishes certain rights that the money lender will possess on the collateral in the duration or period in which loan is getting paid back. The lender possesses these rights till the final settlement of loan is done and the principal amount with interest is fully paid back by the borrower. This collateral although is retained by the borrower in his / her physical possession but it cannot be used by the borrower without the written consent of the lender.
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