What is the outcome of a default on a collateralized loan?

When a borrower defaults on a collateralized loan, the lender has the right to claim the collateral that was pledged as security for the loan. This is a fundamental aspect of collateralized lending. By offering collateral, the borrower provides the lender with an assurance that if the borrower fails to repay the loan as agreed, the lender can take possession of the collateral to recover losses.

In situations of default, the lender's recourse to the collateral mitigates the financial risk associated with lending. This right to claim collateral is what distinguishes a collateralized loan from an unsecured loan, where the lender does not have an asset to claim in case of default.

The other options do not accurately reflect the typical consequences of defaulting on a collateralized loan. For instance, the lender always retains certain rights, borrowers do not usually just pay a fine in these situations, and there are no blanket forgiveness policies for all borrowers in cases of default on loans. Thus, claiming the collateral is indeed the correct outcome in the event of a default.