# Borrower risks

### **Liquidation with oracle**

Liquidation with oracle is related to a loan Health factor, when the Health factor reaches 1 or below, liquidation can be triggered, and the lender can take part of your collateral.

Upon liquidation lender will receive part of your collateral that will cover the **Loan + interest + 1.6% of the collateral as a liquidation fee.**

You as a borrower will be able to claim the remaining collateral if any.

*Health factor*

The **Health Factor** is the numeric representation of the safety of your deposited assets against the borrowed assets and their underlying value. The higher the value, the safer your funds' state is against a liquidation scenario. If the **Health Factor** reaches the liquidation threshold, the lender will be able to liquidate the loan.

![](https://lh3.googleusercontent.com/hcRiLYTnGdC-CbX3Q4awh_HS5zOuE9iEKTDNhjFOH2HYgBhO8TusvRLnYEsZItyY8Ee3C3resEK0T0bSW7OpHalr7IQpu-NdXYJRL5aiqSAME9dnu9l6iB3WBDzPW7FC9lIl8xpod9f_9hLi9Tm_gMbvvF1h4art7hQ4ixv6N62Cdpxy_uL2n9hccw)

The [Liquidation Threshold](https://aada.gitbook.io/aada/platform/how-to-use-the-platform/liquidation/risk-parameters) is an indicator that determines whether a position is undercollateralized. If the **Health Factor** reaches 1 or below, the loan is considered undercollateralized, and the lender can trigger a liquidation process.

### **Liquidation when the loan expires**

When creating a loan, **wisely choose the loan term** as you will have to repay the loan before that term ends. If you fail to repay in time, the lender will have an option to take your **whole collateral, no matter how high the Health factor is**.

### **Smart contract failure**

Theoretically, there is the possibility of smart contract failure or exploit. If it happens, you could lose your whole collateral.\
We are open-source, and our code is audited by [VacuumLabs](https://github.com/aadafinance/materials/blob/main/Aada_finance_audit.pdf).