Purchase Money Security Interest (PMSI)
What does it mean
A Purchase Money Security Interest (PMSI) is a legal concept in lending where the lender obtains a security interest or collateral in the specific property or goods that the loan is used to purchase. In other words, the security interest "attaches" to the item being purchased.
Why does it matter
For a banker, understanding PMSI is crucial when dealing with loans used to acquire specific assets, such as equipment. It grants the lender a preferential position in recovering the value of the financed asset if the borrower defaults. This concept is particularly relevant in scenarios like auto loans or equipment financing, where the lender wants assurance that their interest in the purchased item is protected.
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