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Securities for loan (Pledge, Hypothecation, Mortgage, and Lien)

Securities for loan:Pledge, Hypothecation, Mortgage and Lien

Securities for loan:Pledge, Hypothecation, Mortgage and Lien

Securities for loan (Pledge, Hypothecation, Mortgage, and Lien)


Pledge, Hypothecation, Mortgage, and Lien
Pledge, Hypothecation, Mortgage, and Lien

Banks offer different kinds of loans to individuals and businessmen. Banks demand collaterals and securities for offering certain kinds of loans. Such securities can be classified into 4 major types namely Pledge, Hypothecation, Mortgage, and Lien.

1.Pledge – A pledge can be in the form of Certificates, Gold, and Goods as accepted by the concerned Financial Institution. The requirements and eligibility criterion differ from one Bank and another when the pledge is towards a loan to be availed from them. The object to be pledged with a Bank must be movable in nature. The person who seeks the loan and pledges a movable object is the Pledgor and the Bank who offers loan to him accepting the pledge is called Pledgee. The Pledgee has the right to sell the property pledged by the Pledgor if the latter fails to repay the loan amount in full within the stipulated time period. Advance loans against NSC, Jewel Loans, and Loans against Assets, Gold Loans fall under this category.

Pledge comes Under Indian Law: Section 172
Examples of Pledge: Gold Loans, loan against assets

2.Hypothecation – Hypothecation is the concept in which, though you are a borrower, you are given the possession of the Asset towards which you have taken the loan. Vehicle Loans fall under this category termed as Hypothecation. If in case the borrower defaults from paying the loan amount borrowed from the Bank, the Bank has the right to confiscate the Vehicle that is with the former at any point in time. This recovery can be done by the Bank along with the interest component.

Hypothecation comes Under Indian Law: Not defined under Indian Law for an extended time.
Example of Hypothecation: Car Loans

3.Mortgage – As Pledge is for movable properties, Mortgage is for Immovable properties. When you seek a loan from a Bank or Financial Institution, Mortgage is one of the security options you can provide to the Bank. Mortgage Loan is given to you against or for the property that is in your name. Mortgage Loans are given to people by Banks and Financial Institutions for immovable properties like House, Factory and Land surface. If the person who avails Mortgage Loan fails to repay the outstanding Loan amount within the stipulated period of time to the Bank that offered the same, the Bank has the right to seize the property mortgaged, sell the same and recover the loan amount along with the interest component.

Mortgage comes Under Indian Law: Section 58
Example of Mortgage: Home Loans

4. Lien – Very much similar to Pledge, except that lien is defined to be a right of detaining the assets of another until some claim is fulfilled.

Example of Lien:
Suppose someone takes a car loan of Rs.2 lakh from a bank. As per Bank’s terms and conditions,
As long as the loan is not fully repaid, the bank is caught as a title against the car in the form of a lien.

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