Purchase Money Security Interest (PMSI)

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Definition of 'Purchase Money Security Interest (PMSI)'

A purchase money security interest (PMSI) is a security interest in personal property that is created as part of the purchase of that property. The security interest secures the repayment of the purchase price.

PMSIs are often used in car loans, where the lender takes a security interest in the car that is being purchased. If the borrower defaults on the loan, the lender can repossess the car and sell it to recoup their losses.

PMSIs can also be used in other types of transactions, such as the purchase of furniture or appliances. In these cases, the security interest typically lasts for the term of the loan.

There are a few important things to know about PMSIS. First, they are automatically perfected, which means that the lender does not need to take any additional steps to make the security interest valid. Second, PMSIS have priority over other security interests in the same collateral, as long as the lender perfects their interest before the other creditor.

PMSIs can be a valuable tool for lenders, as they provide a way to secure repayment of loans. However, it is important to understand the risks involved before using a PMSI.

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