Security Interest Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Security Interest, written in plain English, along with examples of how it is used.

What is Security Interest?

(n) Security interest is the right acquired by a creditor or lender, on the property held by him as security for the amount due to him, to use the right on the property to recover the amount due to him

History and Meaning of Security Interest

A security interest is a legal right granted to a lender or creditor over a borrower's property, which gives the lender the right to seize and sell the property in order to recover the funds that are owed to them. Security interests are created when a borrower pledges collateral as security for a loan. In the event that the borrower is unable to repay the loan, the lender can take possession of the collateral and sell it to recover their money.

The concept of security interests has been in existence for centuries, and it is an essential feature of modern lending practices. Security interests are governed by the law of secured transactions, which regulates the creation, perfection, and enforcement of security interests in various types of collateral, including personal property, real estate, and intangible assets.

Examples of Security Interest

  1. A car loan is an example of a security interest, where the car is used as collateral against the loan. If the borrower defaults on the loan, the lender can repossess the car and sell it to recover their money.

  2. A mortgage is another example of a security interest, where the house is used as collateral. If the borrower defaults on the mortgage, the lender can foreclose on the property and sell it to recover their money.

  3. A business may take out a loan and use its inventory or accounts receivable as collateral to secure the loan. If the business is unable to repay the loan, the lender can seize the inventory or collect on the accounts receivable to recover their money.

Legal Terms Similar to Security Interest

  1. Collateral: Property that is pledged to secure a loan or other debt.

  2. Lien: A legal claim or encumbrance on property that is used to secure a debt or obligation.

  3. Perfection: The process by which a security interest becomes enforceable against third parties.