Non-Possessory Security Interest

A non-possessory security interest is a legal claim a lender has on a borrower’s property to secure a loan, without taking physical possession of the asset. For example, if you borrow money using your car or property as collateral, the lender can claim a security interest in that asset if you default, but they don’t automatically get to keep or physically hold it. Instead, they have the right to sell or take other actions to recover the debt. This arrangement protects the lender while allowing the borrower to retain use of the asset during the loan period.