What is a lien?

A lien is defined as a legal claim on property used to secure a debt. When a lien is placed on a property, it gives the creditor the right to take possession of the asset if the debt is not repaid. This ensures that the lender has a way to recover their funds by claiming the property if the borrower defaults on their financial obligations. Liens are commonly used in many types of transactions, such as mortgages and car loans, where the purchased property serves as collateral.

In contrast, other options refer to different financial concepts that do not directly relate to the legal claim aspect. A type of loan describes various borrowing instruments but does not imply a legal structure that secures property. An interest rate on credit pertains to the cost of borrowing money but does not involve property claims. A form of credit counseling is a service designed to help individuals manage their debt and financial situations, which does not involve the concept of liens at all. Understanding liens is crucial for grasping how secured debts and collateral work in personal and business finance.