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Simple English definitions for legal terms
Secured transaction
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A quick definition of Secured transaction:
Secured transaction: When someone borrows money or buys something on credit, they may have to give something valuable as a guarantee that they will pay back the money. This valuable thing is called collateral. If the borrower or buyer doesn't pay back the money, the lender or seller can take the collateral to make up for the loss. This is called a secured transaction.
A more thorough explanation:
Secured transaction
A secured transaction is a type of deal where a buyer or borrower (called a debtor) promises to pay back a debt by giving the seller or lender (called a secured party) a security interest in property. This property is called collateral. If the buyer or borrower fails to pay back the debt, the seller or lender can take possession of the collateral or anything else specified in the security agreement.
Example 1: John wants to buy a car but doesn't have enough money to pay for it upfront. He goes to a bank and takes out a loan to buy the car. The bank becomes the secured party and John becomes the debtor. The car becomes the collateral. If John fails to pay back the loan, the bank can take possession of the car.
Example 2: Sarah wants to start a business and needs to buy equipment. She goes to a supplier and agrees to pay for the equipment in installments. The supplier becomes the secured party and Sarah becomes the debtor. The equipment becomes the collateral. If Sarah fails to pay for the equipment, the supplier can take possession of it.
These examples illustrate how a secured transaction works. In both cases, the debtor promises to pay back a debt by giving the secured party a security interest in property. If the debtor fails to pay back the debt, the secured party can take possession of the collateral.