What is a collateral security in the context of obtaining a loan?

The additional security required by lending institutions

The correct answer is option 2- The additional security required by lending institutions.

In the context of obtaining a loan or overdraft, collateral security refers to additional security that lending institutions require beyond the primary security. The primary security is typically the main asset or guarantee provided by the borrower to secure the loan. However, lending institutions may ask for additional assets or guarantees to further secure the loan. Collateral security serves as a supplementary or secondary level of security to protect the lending institution's interests. It can be in the form of assets, financial instruments, or other forms of collateral that can be used to cover the loan amount in case the primary security is insufficient or in case of default by the borrower.