Interest Rate Collar is created by
We go Long Interest Rate Cap(Series of Interest rate Call options) - This way when Interest rates go up we will pay fixed and receive floating. So If we have a floating rate liability we will be able to finance that liability from payoffs of this cap (we are afraid that Interest rates go up).
We also go Short Interest Rate Floor ( Series of Interest Rate Put option) - Here we sell the floor wherein we pay fixed and recive floating. The buyer of the floor would exercise the option if Interest rates go down so that he receives fixed rate and pays lower market interest rate. We would suffer losses if Market Interest rates go down. However if Interest rate goes up, the long floor would not exercise and our payoff would be the premium for writing the Floor.
Assuming Interest rates go up we are hedged for our floating rate liability and the premium paid for our Interest Rate cap is reimbursed by Short Floor premium received.
If Interest rates go down, (We benefit by paying less on our floating rate liability + We have received premium for writing the floor) but also pay the losses on Short Floor(Pay fixed, Receive floating). Thus overall we are hedged again.
The same strategy in reverse applies for going Long Interest Rate floor and Short Interest rate cap (to finance our Floating Rate Asset)