At first I imagined getting a loan and putting BTC up for collateral would involve a 2 of 3 multisig between you, the lender and a 3rd party who could resolve any disputes. The lender would have to sign receipts for each payment so the 3rd paryy could verify paymdnts were really made.
But tgen I realized, it can be much simpler than that. The lender can just give back a proportional amount of the collateral as paymenrs are made.
The other question is why anyone would want to borrow against their bitcoin. It's simple. Say the borrower thinks bitcoin will go up by at least 20% over a year. They could get a loan at 10% APR and come out ahead (if they are correct). Whether they use the money to buy more coin, revovate their house, or buy a car doesn't really matter. The alternative is to sell it
The lender gets a nearly guaranteed 10% ROI, so they should be thrilled in this example.