Collateral Based Lending

Collateral based lending is a financial concept where a borrower provides an asset (collateral) as security for a loan, reducing the lender's risk. If the borrower defaults, the lender can seize and sell the collateral to recover the loan amount. This approach is widely used in banking, fintech, and decentralized finance (DeFi) to facilitate lending with lower credit requirements.

Also known as: Asset-Backed Lending, Secured Lending, Collateralized Loans, CBL, Collateral Lending

Why learn Collateral Based Lending?

Developers should understand collateral based lending when building financial applications, such as banking platforms, peer-to-peer lending services, or DeFi protocols, to implement secure loan mechanisms. It's crucial for creating systems that manage asset-backed loans, automate collateral valuation, and handle liquidation processes in case of default.

Learning Resources

• docs: Investopedia: Collateral
• tutorial: DeFi Pulse: Lending Protocols
• course: Coursera: Fintech and the Transformation in Financial Services
• video: YouTube: How Collateral Works in Lending
• book: Book: The Fintech Book