Legal Definitions - repo

Definition: Repo (short for repurchase agreement) is a financial transaction where one party sells an asset (usually securities) to another party with a promise to buy it back at a later date. Repo can also refer to the act of repossessing an asset due to non-payment.

Repossession: If you fail to make your car payments, the lender may repossess your car and sell it to recoup their losses.

Repurchase Agreement: A bank may sell government bonds to another bank with an agreement to buy them back in a week at a slightly higher price. This allows the first bank to raise cash quickly while the second bank earns a small profit.

These examples illustrate the two different meanings of repo. In the first example, repo refers to the act of repossessing an asset due to non-payment. In the second example, repo refers to a financial transaction where one party sells an asset with a promise to buy it back at a later date.