when a loan has more collateral or backing than the value of the loan the risk to the lender is virtually eliminated that s because if the borrower defaults the lender can easily recoup the lost value by using the collateral which will more than cover losses 
the bottom linean over collateralized loan is a loan that is backed by more collateral than it is worth while in many cases it is ideal to provide lower collateral so you do not put the collateral at risk overcollateralizing a loan may be necessary in some cases such as if you want to secure better terms 