What is a purchase money security interest (PMSI)?

• A. A general security interest with no priority over other liens.
• B. A lease-based right to possess equipment without filing.
• C. An unsecured loan secured by the equipment value.
• D. A special type of security interest that has priority over other security interests in the same equipment if filed within a certain time period.

Answer: (D)

A purchase money security interest is a security interest created when the lender or seller provides the financing to buy the collateral itself. Its key feature is that it can have priority over other security interests in the same equipment, but only if the interest is perfected within a specific time window after the debtor takes possession. This timed perfection protects the lender who financed the purchase, ensuring they get paid from the collateral before other lienholders in the event of default. Importantly, other types of liens or unsecured loans don’t automatically enjoy this superpriority, which is what sets a PMSI apart.