Pledging and accepting collateral is permissible in the faith; there is no doubt about this. When lending money to someone, one may accept an item as security to ensure against being deceived.
It must be understood that the collateral serves merely as a guarantee for the loan provided.
If one lends money against a piece of jewelry held as collateral, that jewelry must be kept safe and unused. The same rule applies if a house is held as collateral.
If one lends money against a house and then resides in that house—specifically, living there without paying rent—such usage is considered interest on the loan.
One should not reside in a house held as collateral; if one does reside there, the corresponding rent must be paid.
In the case of livestock held as collateral, since the lender feeds and cares for the animals, one may ride them or milk them. There is evidence for this in the Hadiths (Bukhari 2511, 2512).
One may pledge or accept collateral provided these guidelines are observed.
The Prophet (peace be upon him) pledged his coat of mail to a Jewish man and passed away without having redeemed it.
Bukhari 2916, 4467