Pledging a loan means guaranteeing the return of the money that has been loaned to us, leaving an asset as a pledge. Normally, when you apply for a loan, you offer your personal guarantee to respond for its return, that is, you respond with all your assets, present or future.
In some cases, the bank or the lender may request an additional guarantee to grant you the money: the pledge of an asset. It is about leaving one or more physical or financial assets, such as a vehicle, a bank deposit, shares, etc. As a guarantor, you pledge an asset you own, thus limiting your risk.
Pledge A Loan Or Apply For A Home Equity Loan?
Opting for a loan with a pledge guarantee is cheaper since there are no expenses such as appraisals or agency. In a loan with a car pledge (รับจำนำรถจอด, which is the term in Thai), you would only have to go to the notary to document the operation in a public deed or a Notary Public Policy.
Likewise, by presenting a pledged asset as an additional guarantee of payment, you could access more capital or a more competitive interest rate.
Differences With The Mortgage
Unlike a mortgage, in which you can continue to use the mortgaged property while you are paying it, the pledged property can pass into the creditor’s hands, and you cannot dispose of its use during the life of the loan.
Of course, if it is a financial asset, such as stocks or an investment fund, it can continue to generate returns.
What Happens If You Pledge A Loan And Stop Paying It?
If you stop paying the loan’s installments with a pledge, the bank can execute its right to keep the pledged asset and thus recover your money. If it is a physical asset, you will put it up for public auction.
Simultaneously, if it is a financial asset, you can execute it to recover the borrowed capital. For example, if they are shares, you will sell them, and if they are shares of a fund, you will liquidate them.