In the case where a borrower defaults on a loan, the FI may lose only a portion of the principal that was loaned.

Question

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When a borrower defaults on a loan, the financial institution may lose only a portion of the principal amount loaned due to collateral or insurances held by the lender. However, in some cases, the lender may lose the entire principal amount if there are no collateral or insurances to cover the loan.

In the Case Where a Borrower Defaults on a Loan