What is likely to happen if a borrower defaults on a loan?

When a borrower defaults on a loan, it typically means they have failed to meet the repayment terms as set in the loan agreement. One common consequence of such a default is the repossession of collateral that was pledged against the loan. For example, if the loan was secured by an asset—like a car or a house—the lender has the legal right to reclaim that asset. This process is often outlined in the agreement signed by the borrower at the outset of the loan.

Lenders use collateral to reduce their risk. If a borrower stops making payments, the lender can recover their investment by taking possession of the collateral rather than solely relying on the borrower's ability to repay. This serves both as a protective measure for the lender and as a deterrent to the borrower from defaulting.

In the other scenarios mentioned, debts being forgiven is generally not the case unless under specific legal circumstances such as bankruptcy, which is not the norm for most loans. A borrower will not receive a refund when they default, as they owe money rather than having a surplus. Interest rates decreasing is unrelated to an individual borrower's default status; it typically pertains to broader economic conditions or central bank policies.