Both Pledge and Mortgage are two different methods of creating a charge on securities of the borrowers as collateral against a loan provided by the commercial banks or financial/lending institutions. However, there is some key difference between Pledge and Mortgage.
There always need some securities when it comes to the requirement of a loan/debt from any financial institution. When anybody/borrower approaches the banks or finance companies to get a loan, the banks ask for some security.
Depending upon types of loan and security the banks or other finance companies create a charge on those security/assets and then approve the loan.
Table of Contents
Pledge vs Mortgage (Comparison Table):
|Basis of Comparison
|Pledge is the method of creating a charge over movable properties.
|Mortgage is the method of creating a charge over immovable properties.
|Section 172, Indian Contract Act 1872
|Section 58, Transfer of Property Act 1882
|Possession of Property
|Lender/ financial institution
|Example of Properties
|Gold, Shares, NSC, FD, Insurance Policy
|Land & buildings, House or apartment, Machinery, Plant
|Gold Loan, Loan against NSC, FD, LIC
Difference between Pledge and Mortgage:
Pledge and Mortgage can be differentiated based on types of property, possession, Right of borrower or lender etc which are explained below.
1) Meaning and Definition:
Pledge is typically utilised where the charge needs to be created over movable assets such as to avail the debt. On the other hand, Mortgage is used when the securities provided is an immovable asset/property by the borrowers to obtain the loans.
For more detailed information:
In other words, a mortgage is used when the securities given by borrowers are attached to earth (can’t move from one place to another). Such securities are known as immovable assets/property.
2) Defined Under:
3) Applicable to which type of Assets:
Pledge is applied on the movable properties such as Gold, shares, NSC (National Saving Schemes), Fixed Deposits, Insurance Policies etc.
On the other hand, Mortgage is applied over immovable properties that mean anything which is fixed or attached to the earth, for example, Land & buildings, House, Plant & Machinery etc.
4) Possession of Property:
When the assets or goods are pledged by any banks or finance company, the property or goods are under the custody of a bank or finance company or the lender itself.
However, the borrower can still entertain the benefits of his goods. For instance, if a person pledged his shares to get a debt from a bank, he will still entertain the benefits of his shares/stocks such as Dividends, capital gain (due to appreciation in share price).
On the other hand, if the property/assets are mortgage by the banks/lender, the assets/property retain with the borrower, however, the legal papers of property are kept with the banks.
Moreover, even if the property of borrower is mortgaged with a bank, still he can lease his house or apartment on rent but he cannot sell his property.
5) Examples of Loan:
Let us consider an example to understand the difference between pledge and mortgage.
When you pledge your Gold, Fixed Deposits, Shares or LIC to obtain a loan from any bank or finance company. Then banks or finance companies keep your personal assets (Gold or shares) with themselves as collateral (security) before sanctioning the loan.
On the other hand, when you require a housing loan against your lands and building or house, then your property is mortgaged with the bank/finance company as security to avail the home loan.
Hope this article would help you to distinguish between pledge and mortgage. All in all the following three major differences can be drawn from the above lesson.
- Pledge is used to create a charge over movable properties whereas Mortgage is used in case of immovable properties.
- In case of pledge, the goods are kept with the lender, whereas mortgaged properties are retained with the borrower.
- Pledge examples are Gold Loan, loan against FDs, NSC, LIC etc, on the other hand, home loans are the best example of a mortgage loan.