Primary security means a specific asset against which loan granted. For example, where a Bank finances the purchase of a home, the home is the primary security. In the same way, a car purchased with the help of a Bank loan, is the primary security for that loan. Bank creates a charge against this primary security, to secure its loan. This charge gives the Bank the legal authority to dispose off the asset, and apply the proceeds therefrom, to the loan amount in default. Primary security may be either personal
security or impersonal security or both. Personal Guarantee & Corporate Guarantee may be treated as personal security & imported or locally produced goods may be treated as impersonal security. Collateral/Secondary Security:
if any additional
security provides other
than "primary Security" it is called collateral security. When primary security remains under the custody of borrowers, banker to secure
its position
ask the borrower
to provide additional
security. Such tangible security
is called
collateral security. The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation. If a borrower does default on a loan (due to insolvency or other event), that borrower forfeits (gives up) the property pledged as collateral - and the lender then becomes the owner of the collateral.
Property pledged by a borrower to protect the interests of the lender in the event of the borrower's
default;; specifically under Article 9 of the Uniform Commercial Code
:
property subject to a security interest.