# Lender & Counterparty Risk

Borrow connects users to a range of lenders. Each lender operates under its own custody model, risk profile, and terms.

Understanding these differences helps you choose the loan option that fits your needs.

### Non-custodial lenders

Some lenders use smart-contract-based systems to manage collateral and issue loans.

With these lenders:

* collateral is supplied to the protocol’s smart contracts
* loan terms are enforced on-chain
* repayment, interest, and liquidation follow protocol-defined rules

#### Considerations

Non-custodial lending carries technical and market risks, including:

* smart-contract vulnerabilities
* liquidity constraints
* protocol-specific parameters such as interest models or liquidation thresholds

While these systems are transparent and on-chain, they still involve inherent risks.

### Custodial lenders

Other lenders operate using a custodial model. In these cases, collateral is held directly by the lender as part of the loan agreement.

#### Considerations

Custodial lending introduces counterparty risk:

* collateral safety depends on the lender’s operational practices and solvency
* loan terms and servicing follow the lender’s internal policies
* the lender decides how collateral is managed and stored

Custodial providers may offer different rates or features, but users should evaluate the risks that come with centralized custody.

### How Borrow presents lenders

Borrow does not hold collateral on behalf of users. Instead, it provides access to supported lenders and clearly shows whether a lender is:

* custodial
* non-custodial
* operating on a specific network
* offering a particular loan structure or LTV

This transparency allows you to choose a lender based on your own preferences, risk tolerance, and desired loan features.

### Your responsibility as a borrower

Before entering a loan, users should consider:

* the lender’s custody model
* the loan terms and repayment conditions
* the risks associated with the type of lender selected
* how borrowing decisions may be affected by market volatility

Borrow provides the information needed to make an informed decision, but the choice of lender and loan structure ultimately rests with the user.

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