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Simple English definitions for legal terms
Purchase-money collateral
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A quick definition of Purchase-money collateral:
Term: Purchase-money collateral
Definition: Purchase-money collateral refers to goods or software that a person uses to secure a loan they take out to buy those same goods. For example, if someone wants to buy a car, they might use the car itself as collateral for the loan they take out to pay for it. This means that if they can't pay back the loan, the lender can take possession of the car to recoup their losses.
A more thorough explanation:
Purchase-money collateral
Purchase-money collateral refers to goods or software that a debtor uses to secure a purchase-money obligation. This obligation is incurred when the debtor buys goods.
For example, if a person buys a car on credit, the car becomes the purchase-money collateral. The lender can repossess the car if the borrower fails to make payments. Similarly, if a business buys software on credit, the software becomes the purchase-money collateral. The lender can take possession of the software if the business defaults on the loan.
Another example is when a person buys a house and takes out a mortgage. The house becomes the purchase-money collateral, and the lender can foreclose on the property if the borrower fails to make mortgage payments.
Purchase-money collateral is a way for lenders to protect themselves when they lend money to borrowers to buy goods or software. By using the purchased item as collateral, the lender has a way to recover their money if the borrower defaults on the loan. The examples illustrate how different types of purchases can result in different types of purchase-money collateral.
Purchase Money Resulting Trust | Purchase-money security interest