Secured and Unsecured Credit Transactions 32-1 What Is a Secured Credit Transaction? 32-2 How Are Security Interests Perfected and Terminated? South-Western, a part of Cengage Learning Slide 1
32-1 What Is a Secured Credit GOALS Transaction? Assess the importance of secured credit transactions Discuss how a security interest is created South-Western, a part of Cengage Learning Slide 2
IMPORTANCE OF SECURED CREDIT TRANSACTIONS Debtor v. creditor Secured transaction Security interest Collateral Right of repossession Secured party South-Western, a part of Cengage Learning Slide 3
What is collateral? South-Western, a part of Cengage Learning Slide 4
CREATION OF SECURITY INTERESTS When the creditor has possession of the collateral When the debtor retains possession of the collateral South-Western, a part of Cengage Learning Slide 5
What types of property can be collateral for secured transactions under the UCC? South-Western, a part of Cengage Learning Slide 6
32-2 How Are Security Interests GOALS Perfected and Terminated? Explain how a security interest is perfected Describe the ways in which security interests can be terminated South-Western, a part of Cengage Learning Slide 7
PERFECTING A SECURITY INTEREST Notice through possession Notice through filing a financing statement Tangible property Consumer goods Farm products Inventory Equipment Intangible property South-Western, a part of Cengage Learning Slide 8
What is a financing statement? South-Western, a part of Cengage Learning Slide 9
TERMINATING A SECURITY INTEREST The termination statement Secured creditor may take possession if debtor defaults Protection for consumers where value of goods exceeds amount of debt South-Western, a part of Cengage Learning Slide 10
What significance does the termination statement have for the debtor? South-Western, a part of Cengage Learning Slide 11
PREVENT LEGAL DIFFICULTIES If you are a borrower or buyer in a secured transaction Be sure you understand the entire security agreement before you sign it. Never sign any security agreement that has blank spaces to be filled in later. Draw lines in any blank spaces not used. Continued on the next slide South-Western, a part of Cengage Learning Slide 12
PREVENT LEGAL DIFFICULTIES Do not simply agree to the financing terms offered by the seller. These often are significantly above market. Always shop around for an appropriate loan from competing lenders. Know what any charges are for, especially service charges. Ask for a detailed listing if it is not offered. Continued on the next slide South-Western, a part of Cengage Learning Slide 13
PREVENT LEGAL DIFFICULTIES Find out if there are any penalties for late payment of installments or if there are any discounts for making payments before they are due. Include express warranties or other promises of the seller in the written contract to avoid later difficulty of proof under the parol evidence rule. Continued on the next slide South-Western, a part of Cengage Learning Slide 14
PREVENT LEGAL DIFFICULTIES Always get a copy of the agreement, signed by the other party. After payment in full, check to be sure that a termination statement has been properly filed. South-Western, a part of Cengage Learning Slide 15