Legal Definitions - perfected security interest

A perfected security interest is a legal term that refers to a property interest created by an agreement or by operation of law to secure performance of an obligation, especially repayment of a debt. It is a security interest that complies with the statutory requirements for achieving priority over a trustee in bankruptcy and unperfected interests. A perfected interest may also have priority over another interest that was perfected later in time.

• Purchase-Money Security Interest: A security interest that is created when a buyer uses the lender's money to make the purchase and immediately gives the lender security. For example, if a buyer's purchase of a car is financed by a bank that loans the amount of the purchase price, the bank's security interest in the car that secures the loan is a purchase-money security interest.
• Unperfected Security Interest: A security interest held by a creditor who has not established priority over any other creditor. For example, if a debtor owes money to two creditors and one creditor has a perfected security interest while the other has an unperfected security interest, the creditor with the perfected security interest will have priority over the other creditor.

These examples illustrate how a perfected security interest can provide a creditor with priority over other creditors in the event of bankruptcy or default by the debtor. It is important for creditors to ensure that their security interests are perfected in order to protect their interests in the collateral.