A purchase-money security interest (PMSI) is established when an individual borrows money to make a purchase and promptly provides the lender with collateral. For instance, if someone obtains a loan from a bank to purchase a boat, the bank will hold a PMSI on the boat as a guarantee for the loan. Additionally, a PMSI can also pertain to a security interest obtained by a seller to secure the full or partial payment for the item being sold.
A purchase-money security interest (PMSI) is created when a buyer uses a lender’s funds to make a purchase and immediately provides the lender with security. It can also be obtained or retained by the seller of the collateral to secure all or part of the purchase price, or by someone who provides value to enable the debtor to acquire rights in or use of the collateral. For instance, if a buyer finances the purchase of a car through a bank loan, the bank’s security interest in the car that secures the loan is considered a purchase-money security interest. PMSI is commonly abbreviated as PMSI and is also referred to as a purchase-money interest.
PMSI stands for Purchase Money Security Interest.
A PMSI is a legal term used to describe a security interest that is granted to a lender or seller to secure the purchase price of goods or equipment.
Unlike other security interests, a PMSI has priority over other creditors if certain requirements are met. This means that in the event of default or bankruptcy, the lender or seller with a PMSI will have a higher chance of recovering their investment.
To have priority, a PMSI must be properly perfected by filing a financing statement with the appropriate government agency within a specific timeframe. Additionally, the PMSI must be used to finance the purchase of the specific goods or equipment it is securing.
No, a PMSI can only be granted for the purchase of goods or equipment. It cannot be used for services or other types of transactions.
Yes, both individuals and businesses can grant a PMSI. However, the requirements and procedures may vary depending on the jurisdiction and the specific circumstances.
If a PMSI is not properly perfected, it may lose its priority status. This means that in the event of default or bankruptcy, other creditors may have a higher claim to the collateral.
Yes, a PMSI can be transferred or assigned to another party. However, the transfer or assignment must be properly documented and perfected to maintain its priority status.
Yes, a PMSI can be discharged or released once the underlying debt or obligation is fully satisfied. This typically involves filing a release or termination statement with the appropriate government agency.
If a PMSI is not repaid, the lender or seller may have the right to repossess the collateral and sell it to recover their investment. The specific rights and remedies will depend on the applicable laws and the terms of the PMSI agreement.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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