What does the term "collateral" refer to in lending?

The term "collateral" specifically refers to an asset that a borrower offers to a lender as security for a loan. This means that if the borrower fails to make the required payments or defaults on the loan, the lender has the right to seize the collateral to recover some or all of the owed amount. Collateral reduces the risk for the lender because it provides a form of assurance that they can recoup their investment through the pledged asset.

Other concepts outlined in the incorrect options are distinct from collateral. Flexible repayment terms are related to the conditions of the loan repayment itself, rather than the assets securing the loan. Interest accrued refers to the additional cost of borrowing money, which is separate from what collateral represents. Lastly, the total amount borrowed pertains to the principal of the loan, not the assets that may back it. Understanding the role of collateral is critical in the context of lending as it can influence the interest rates offered and the borrower's eligibility for loans.