New York State Notary Practice Exam

What type of document provides security for a loan or credit arrangement?

1. Chattel paper

2. Affidavit

3. Power of attorney

4. Will

The correct answer is: Chattel paper

The correct answer is chattel paper because it specifically refers to a document that evidences both a monetary obligation and a security interest in specific goods. In the context of a loan or credit arrangement, chattel paper serves as collateral for the borrower's obligation to repay the loan. This means if the borrower fails to make payments, the lender can claim the goods specified in the chattel paper as recourse. The other options serve different purposes. An affidavit is a written statement made under oath that is often used as evidence in legal matters but does not provide security for loans. A power of attorney grants someone the authority to act on behalf of another person, typically in financial or legal matters, but it does not inherently secure a loan. A will outlines how a person's assets should be distributed after their death but does not provide security for financial agreements during the person's lifetime.