Final answer:
A creditor can seize collateral, property, or equipment that secures a loan, if the borrower defaults on repayment. This right is established in the loan agreement, helping to mitigate financial risk for the lender.
Step-by-step explanation:
A creditor has the right to seize property as collateral for an unpaid debt when a borrower enters into a loan agreement that includes a collateral clause. Collateral is something valuable—often property or equipment—that secures the loan. In the event that the borrower defaults on their loan repayments, the lender has a legal right to seize and sell the collateral to recover the owed amount. This practice is common in the financial capital market to protect the lender's interests.
In the process of loan approval, a bank or financial institution may conduct a credit check and require additional forms of security such as a cosigner or collateral. If the borrower does not meet the conditions of the loan, this gives the lender the authority to recuperate their losses by taking possession of the collateral, which is an asset of equivalent or greater value to the loan.