What is the difference between hypothecation and pledge?

Definitions

hypothecation

- Referring to a legal process where a borrower pledges collateral to secure a loan.

- Describing a situation where a borrower retains possession of the pledged asset while the lender has a right to sell it in case of default.

- Talking about a type of loan where the borrower's assets are used as collateral for the loan.

pledge

- Referring to a promise or commitment to do something.

- Describing a situation where a person offers something valuable as security for a loan.

- Talking about a formal promise to donate money or support a cause.

List of Similarities

• 1. Both involve offering something as security.
• 2. Both are used in financial contexts.
• 3. Both imply a level of commitment or obligation.
• 4. Both can have legal consequences.
• 5. Both are related to loans and borrowing.

What is the difference?

• 1. Type of security: Hypothecation involves pledging an asset as collateral, while pledge can involve offering any valuable item as security.
• 2. Possession: In hypothecation, the borrower retains possession of the pledged asset, while in pledge, the lender may take possession of the pledged item.
• 3. Purpose: Hypothecation is specifically used to secure a loan, while pledge can be used for various purposes, including securing a loan, making a promise, or supporting a cause.
• 4. Legal status: Hypothecation is a legal process that involves registration and documentation, while pledge can be informal or formal depending on the context.
• 5. Usage: Hypothecation is a technical term used mainly in financial and legal contexts, while pledge is a more common word used in everyday language.

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Remember this!

Hypothecation and pledge are both related to offering something as security. However, hypothecation is a legal process that involves pledging an asset as collateral to secure a loan, while pledge can be used for various purposes, including securing a loan, making a promise, or supporting a cause. Additionally, hypothecation is a technical term used mainly in financial and legal contexts, while pledge is a more common word used in everyday language.