Yes, Timelocked contracts would work here.
However, if the borrower failed to repay the loan, the coins would be unlocked in any case, so the lender would need some form of additional collateral.
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The lender would have full control of the bitcoin locked in the 2 of 2 multisig since they would be the one given the bitcoin in the commitment transaction. So there shouldn't be any need for additional collateral.