What Is A Security Interest? A Debt Secured by Collateral

When you obtain a loan, in most cases the lender does not want to just give you the money, they want to make sure that you have some sort of incentive to make sure you make your payments.  What better incentive is there than taking away your property if you do not pay?  Therefore, creditors normally want something as collateral to ensure you repay the money they lent you; they are taking a secured interest in your property and the debt you owe them is a secured debt.

There are many different cases of secured interest.  You can go to a dealership and purchase a vehicle, the lender then has a secured interest, the car that you just purchased.  If you decide to no longer keep making your car payment the lender can simply come and pick up or repossess the vehicle.  Put it up for auction and recoup their money.  You buy a home, for whatever reasons, you no longer make the payments, then the mortgage company is going to come and foreclose (take your home back) on your property.  If you go to Best Buy and get a new TV, even though you don’t sit in their office and sign a promissory note like you do on your vehicle; that credit card you used to make the purchase acts the same.  Best Buy still has a secured interest on their goods (the TV that you purchased). This is what’s called a purchase money security interest.

Most debts are unsecured debts. Meaning they do not have a security interest. Most credit cards, medical bills and personal loans are without you putting collateral up for the debt. However, you know a debt is secured if you have property the creditor can come and get if you do not pay the debt.

Companies have rights just as consumers do in order to protect themselves, when you purchase something whether it be a car, a home, jewelry or furniture, companies need to know they will recover the money due to them and, therefore, use collateral as a secured interest. If you cannot make the payments, they can recover the collateral and try to sell it to recover the amount they loaned you.