A car or a house being used as collateral are kept by the borrower at their disposal. This means the borrower can benefit from the collateral asset, e.g. by u

A car or a house being used as collateral are kept by the borrower at their disposal. This means the borrower can benefit from the collateral asset, e.g. by using it or living in it, while the debt still hasn't been paid off. In these cases a fully colletarelised loan can make sense. But this is not the kind of collateral that we're talking about here. We're talking about collateral that is held by the lender in a margin account, or "locked" (in defi parlance), until the debt is paid off, which is the only kind of collateral that can be used in "decentralised finance", because the other type requires a contract (not a smart contract, an actual, legal contract) and the ability to litigate.