Glossary of Terms

Lien 2018-09-28 08:00:00

Lien

A lien is a right to possess property belonging to another person, given that an underlying obligation is not met. In finance, a lien often serves as a guarantee that a borrower will fulfill his or her responsibility of repaying a loan. 

For example, a farmer takes out a loan with the bank to purchase a new tractor. The farmer purchases the tractor using the funds obtained from the bank, but grants the bank a lien on the tractor.

Unable to make the loan payments on the tractor during a year with a long drought, the bank executes the lien and takes the tractor as repayment for the loan the farmer failed to pay fully.