collateralized lending comes with smaller interest rates/financing cost because it's low risk for the lender

if you default - the lender keeps your collateral

haircuts and spread are set sufficiently high to cover liquidity, term and market risks

Illya Gerasymchuk 2025-09-13 13:45

≈80% of lending in financial markets is collateral-based

financial institutions use government bonds as collateral for short-term loans

you're using immovable property as collateral for a generally longer term-loan