In traditional loan processes, collateral plays a significant role in reducing the lender's risk and increasing the likelihood of loan approval. Collateral acts as a safety net for lenders, reducing the potential loss in case a borrower defaults on the loan. By having a valuable asset to claim, lenders can recover at least a portion of the outstanding debt. Lenders may offer lower interest rates on loans secured by collateral. This is because the presence of collateral provides lenders with a sense of security, allowing them to extend more favorable terms to borrowers. Collateral allows borrowers to access larger loan amounts than they might qualify for with an unsecured loan. The value of the collateral can determine the upper limit of the loan.