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First we will understand the meaning of securities and charges that are involved in hypothecation, hypothecation termination, pledge, and mortgage concept. When you visit a bank or any financial institution to avail yourself of some money loan. The loan can be provided in two parts one is a secured loan and the other type is an unsecured loan. A Secure loan relates to a loan where an individual has to keep collateral. E,g gold loans where you keep some of your gold jewellery as collateral to the bank. This gold jewellery is called securities. The bank does not work by mere words spoken by the borrower. It gets some forms and legal papers that include the terms and conditions of the loan and gets it signed by the borrower to avoid any legal complications in future. These are called charges. Charges are created upon securities. In this article, we will learn what is hypothecation, and other types of charges.
What Is A Pledge?
A Pledge is a process in which when an individual or group of individuals go to a bank or any other financial institution to avail of the loan, the bank asks for the possession that the borrower has by himself, and keeps it to the bank. The possessions can not be any property or lounges, they can be papers such as certificates and goods.
The major difference is that the security that is seized by the bank or any other financial institution can only be movable goods or objects. The seized security possession is kept under the bank until the borrower pays the entire debt completely.
This term “pledge” is discussed in Section 172 of the Indian Contract Act enacted in 1872.
The Indian Contract Act defines what is bailments. The bailment is the process of delivery of objects where there are terms and conditions applied to each good with some purpose, when that purpose of the lending money is completed or accomplished, then the pledged goods will be returned to the bailer.
The pledgee which is the bank here has the right to sell the possessions seized from the borrower without worrying about informing the court and any interventions if the borrower is not been able to repay the bank loan.
What Is Hypothecation?
Hypothecation is the process of charging on movable securities items. The charges that are applied to the borrower’s movable possessions is called the hypothecation in the simple language. Hypothecation is applied when the borrower goes to the bank and asks for a loan on his car for example. Now, we know that car is a movable asset this is bought by the borrower. Under the hypothecation charging method, the bank will sign an agreement with the borrower according to which the car will be kept by the borrower only but, if the borrower is not able to pay out the debt in the defined time duration, then the bank has the right to seize the car from the borrower for the lifetime.
Banks don’t directly seize away the possessions but if the borrower is facing problems to pay the loan interest a regular time intervals, the banks get the feeling of insecurity, and then the bank sends a warning notice to the borrower for the collateral possession of the car. The owner of the car will be the borrower as well as the car will be kept with the borrower.
One of the commonplace hypothecations is seen on stocks. The floating charging is applied on the hypothecated goods because the prices of the goods or the quantity is frequently changing.
In hypothecation, the loan amount is comparatively lower and the time duration given to the borrower to pay the loan amount is also less than the pledge.
What Is Hypothecation Termination?
Once the borrower can completely pay off the loan debt borrowed by the bank or other financial institutions by carrying some of the following important documents and this process is called Hypothecation Termination.
Two printed copies of Form 35, bank issued NOC letter, original printed copy of the PAN card document, insurance paper if any availed to the car, permanent address proof, a no dues certificate from the respective company that gave you the car insurance.
What Is Mortgage?
A mortgage is a process of charging on immovable securities items for a loan. The charges that are applied to the borrower’s immovable possessions is called the mortgage in simple language.
A mortgage is a process of charging that is done by the banks and other financial organisations where the possessions owned by the borrower are kept somewhere and not with the bank because they can not be moved. There are many, not mobile goods that can be possessed by the bank, are lands, properties, or buildings such as flats or cottages.
Conclusion
Pledge, Hypothecation, and Mortgage are categories of the charges that are asked by the moneylender such as banks to any individual or groups of people when to borrow some money from them. Hypothecation is the process of charging on movable securities items. The charges that are applied to the borrower’s movable possessions is called the hypothecation in the simple language. A mortgage is a process of charging on immovable securities items. The charges that are applied to the borrower’s immovable possessions is called the mortgage in simple language. Once the borrower can completely pay off the loan debt borrowed by the bank or other financial institutions by carrying some of the following important documents and this process is called Hypothecation Termination.
