Important of Borrowing Terminologies

What’s the Difference between those popular phrases – Pledge vs. Hypothecation vs. Lien vs. Mortgage vs. Assignment?

In simpler terms, loans are of 2 types secured and unsecured loans. Lenders search for some sort of safety cushion or security before lending money.

As a rule of thumb; the higher the lending risks higher the cost of lending. Borrowers look to reduce the risk and lower the borrowing cost by providing collateral to the lenders. The terms and conditions between the two parties can take several legal forms or arrangements.

The features of each loan agreement specify the gap between different terms such as a straight mortgage or Mortgage Assignment.


It is the most frequently used form of loan for buying houses and land. It is defined as a loan against collateral for predetermined loan terms and repayment conditions. The underlying property works as collateral.

The key point with a mortgage would be that the lenders permit the asset or property use and temporary possession before repayment of the loan. Mortgage borrowers make the principal and interest payments over time before the complete repayment to claim the legal possession in clear and full terms.

In the event of default, the creditors have the right to take possession and sell the security to recover the repayment balance.


As a borrower when you have an asset like a home, you can pledge it as collateral to secure a loan from banks or lenders. You’ll continue to keep the legal ownership of the asset or property and any income and losses happening on it. For example, you might own an apartment positioned on rental income that you may pledge as collateral to secure financing without sacrificing the income.

You vowed the home with a mortgage too, right? Yes, the essential distinction is the equity constructed with the advantage. In a mortgage, you begin with zero house equity, as you make payments the house equity builds over the years. At a Hypothecation, you already have asset or property equity that you simply place as collateral.


By definition, a guarantee is simply a promise of repayment against the loan. Practically, it is one step forward to a mortgage or even a hypothecation contract.

You can temporarily have a home with a mortgage, start building equity till you arrive at the entire repayment, and legally have the house incomplete. You’ll keep that house under possession and secure financing from it by putting it as collateral.

Lenders might not be eager to give you a loan without the possession of the security; you’ve got to”assurance” or subtract the advantage to the lenders. Borrowers remain the rightful owner of the pledged asset, but the possession remains with the creditor. It makes the loan agreements more secure and reduces the prices i.e. interest billed.


Assignment describes the transferring of rights connected with a contract to another party. On the other hand, the legal requirements inflict a clear indication of the function and rights being transferred. It might take several forms in company and loan terms. In the actual estate industry, mortgage or property assignments are typical examples of such contracts.

Carrying forward our case, you can look at moving to another city before your home mortgage completes the term. Either you can keep making payments following relocation (additionally the new mortgage also ) or move the rights to another party.

When you delegate the mortgage terms to another party with rights transferring, it is called an Assignment. In the event of default, the creditors to the mortgage contract will still keep the right to seize the home.

As soon as you assign the rights to another party, you no longer have the rights over the property or asset.


Lastly, the Lien is your best that serves the lenders in the loan agreement. Lenders can work out the right to seize the collateral if the payment under agreed terms is not completed in partial or full. It transfers the possession of the security to the creditors providing them the right to market and regain the equilibrium of repayment.

The borrowers may pledge one asset as collateral for more than 1 loan. The lien priority is determined by the kinds of loans and dues. By nature, a lien may take several forms such as a court lien, property lien, bank lien, etc.

In some cases, a court lien might take the form of a blanket lien, meaning seizure of assets of the borrowers to recover the loan obligations and taxation.