A more thorough explanation:

Purchase-money collateral

Purchase-money collateral refers to goods or software that a debtor uses to secure a purchase-money obligation. This obligation is incurred when the debtor buys goods.

For example, if a person buys a car on credit, the car becomes the purchase-money collateral. The lender can repossess the car if the borrower fails to make payments. Similarly, if a business buys software on credit, the software becomes the purchase-money collateral. The lender can take possession of the software if the business defaults on the loan.

Another example is when a person buys a house and takes out a mortgage. The house becomes the purchase-money collateral, and the lender can foreclose on the property if the borrower fails to make mortgage payments.

Purchase-money collateral is a way for lenders to protect themselves when they lend money to borrowers to buy goods or software. By using the purchased item as collateral, the lender has a way to recover their money if the borrower defaults on the loan. The examples illustrate how different types of purchases can result in different types of purchase-money collateral.