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    Define Pledge, Hypothecation and Mortgage in Bank

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    MuhammadAli
    Pledge involves the lender taking physical possession of movable assets as collateral until the debt is repaid, while hypothecation keeps possession with the borrower but gives the lender claim over the assets in default. Mortgage involves creating a charge over immovable property like land or buildings that remains in the borrower's possession until default. Examples of pledge include gold loans and advances against goods, hypothecation includes car loans and stock loans, and mortgage refers to housing loans where a home is pledged as collateral.

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    Define Pledge, Hypothecation and Mortgage in Bank

    Uploaded by

    MuhammadAli
    159 views3 pages
    Pledge involves the lender taking physical possession of movable assets as collateral until the debt is repaid, while hypothecation keeps possession with the borrower but gives the lender claim over the assets in default. Mortgage involves creating a charge over immovable property like land or buildings that remains in the borrower's possession until default. Examples of pledge include gold loans and advances against goods, hypothecation includes car loans and stock loans, and mortgage refers to housing loans where a home is pledged as collateral.

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    Define Pledge, Hypothecation and Mortgage in bank

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    Pledge involves the lender taking physical possession of movable assets as collateral until the debt is repaid, while hypothecation keeps possession with the borrower but gives the lender claim over the assets in default. Mortgage involves creating a charge over immovable property like land or buildings that remains in the borrower's possession until default. Examples of pledge include gold loans and advances against goods, hypothecation includes car loans and stock loans, and mortgage refers to housing loans where a home is pledged as collateral.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    159 views3 pages

    Define Pledge, Hypothecation and Mortgage in Bank

    Uploaded by

    MuhammadAli
    Pledge involves the lender taking physical possession of movable assets as collateral until the debt is repaid, while hypothecation keeps possession with the borrower but gives the lender claim over the assets in default. Mortgage involves creating a charge over immovable property like land or buildings that remains in the borrower's possession until default. Examples of pledge include gold loans and advances against goods, hypothecation includes car loans and stock loans, and mortgage refers to housing loans where a home is pledged as collateral.

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    Define Pledge, Hypothecation and Mortgage.

    (1) Pledge is used when the lender (pledgee) takes actual


    possession of assets (i.e. certificates, goods ). Such securities or
    goods are movable securities. In this case the pledgee retains the
    possession of the goods until the pledgor (i.e. borrower) repays the
    entire debt amount. In case there is default by the borrower, the
    pledgee has a right to sell the goods in his possession and adjust its
    proceeds towards the amount due (i.e. principal and interest
    amount). Some examples of pledge are Gold /Jewellery Loans,
    Advance against goods,/stock, Advances against National Saving
    Certificates etc.

    (2) Hypothecation is used for creating charge against the security


    of movable assets, but here the possession of the security remains
    with the borrower itself. Thus, in case of default by the borrower,
    the lender (i.e. to whom the goods / security has been
    hypothecated) will have to first take possession of the security and
    then sell the same. The best example of this type of arrangement
    are Car Loans. In this case Car / Vehicle remains with the
    borrower but the same is hypothecated to the bank / financer. In
    case the borrower, defaults, banks take possession of the vehicle
    after giving notice and then sell the same and credit the proceeds to
    the loan account. Other examples of these hypothecation are loans
    against stock and debtors. [Sometimes, borrowers cheat the
    banker by partly selling goods hypothecated to bank and not
    keeping the desired amount of stock of goods. In such cases, if
    bank feels that borrower is trying to cheat, then it can convert
    hypothecation to pledge i.e. it takes over possession of the goods
    and keeps the same under lock and key of the bank].

    (3) Mortgage : is used for creating charge against immovable


    property which includes land, buildings or anything that is
    attached to the earth or permanently fastened to anything attached
    to the earth (However, it does not include growing crops or grass as
    they can be easily detached from the earth). The best example
    when mortage is created is when someone takes a Housing Loan /
    Home Loan. In this case house is mortgaged in favour of the bank /
    financer but remains in possession of the borrower, which he uses
    for himself or even may give on rent.
    Difference Between Pledge, Hypothecation and Mortgage at a
    Glance:

    Pledge Hypothecation Mortgage


    Type of Security Movable Movable Immovable
    Possession of the Usually Remains
    Remains with lender (pledgee) Remains with Borrower
    security with Borrower

    Gold Loan, Advance against


    Examples of Loan Car / Vehilce Loans, Adv
    NSCs, Adv against goods (also Housing Loans
    where used against stock and debtors
    given under hypothecation)

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