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Home›Business›Borrow funds by pledging an asset

Borrow funds by pledging an asset

By Ferrara
October 15, 2019
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A pledge is a cash deposit or any property placed as security for a loan by a debtor to a creditor. The debtor is called a pledger, while a creditor is a pledgee. The pledgee has the right to sell the property in case of non-repayment of loan. An asset that is being deposited as a pledge must hold sufficient monetary value. There is no transfer of ownership in a pledge. The ownership of the asset lies with the pledger. The pledge is collateral that is held by the pledgee against the loan given to the pledger. Different assets can be pledged depending upon the funds needed by the pledger like stocks, immovable property, bonds, shares, etc.

What is a pledged asset?

A pledged asset is an asset that is transferred as a security by a pledger to the pledgee. A pledge does not include the transfer of ownership; only the possession of the asset is transferred. The pledgee has the right to sell the pledged asset in case of default in repayment of loan by the pledger. The pledgee requires no permission of the pledger to sell the property in case of default. The pledgee has legal recourse to take the ownership of the pledged asset, should the borrower defaults in making payment. Car pledge [จํานํารถ, which is the term in Thai] is the most common asset used for pledging.

How to qualify for a loan against pledge?

The basic requirement of qualifying for a pledged loan is to place security whose monetary value is more than the amount of down payment. During repayment of loan if the value of the asset depreciates the pledgee may ask for additional funds to fill the gap of the depreciated value. If the pledger pledges share as security the pledgee may restrict investments in financial instruments that involve huge risk.

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