A security interest must be created in order for the credit union to take possession of property upon default (that is, when the borrower fails to repay the loan or fails to fulfill any other condition of the loan).

For example, if Jim fails to maintain proper insurance on a vehicle loan, and the maintenance of insurance is a requirement Jim agreed to when signing the loan agreement, he is in default on the loan.

If Jim gave the credit union an interest in the vehicle as a condition of the loan, the credit union may take possession of the vehicle and give Jim the option of making good on the loan or having the credit union sell the vehicle and apply the proceeds to cover the loan amount.