- It is the practice where a borrower pledges collateral to secure a debt or a borrower, as a condition precedent to a loan, or has a third party (usually an affiliate) pledge collateral for the borrower.
- Charge against property for an amount of debt where neither ownership nor possession is passed to the creditor. In pledge, possession of property is passed on to the lender but in hypothecation, the property remains with the borrower in trust for the lender.
Banking Term: Hypothecation
Find important banking term that is useful in upcoming banking exam