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Home / Finance / Home Loan / What is hypothecation loan ?
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What is hypothecation loan ?

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0 2022-05-18T10:25:38+00:00
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Hey,

Before coming across your question, I had no idea about hypothecation in banking. I was not aware of the concept or its meaning. Out of curiosity, I asked my friend who is studying to work in a bank ‘what does the term mean’? He laughed yet gave me an answer. Keep reading to know what I learned and how it is helpful for banks.

What is hypothecation loan ?

As the name suggests, it is a type of loan provided to customers by banks and financial intuitions. In this loan, the customer has to pledge an asset to the lender to avail the loan. Most people pledge cars. This means that the car is collateral or security until the repayment of the loan is complete.

If you have any confusion about hypothecation loan meaning. Read the example below.

If I take a Hypothecation loan and secure the loan by pledging the car. I will have physical possession of the car. If I am unable to make payment of the loan amount + added interest then the bank will take my car away. 

Hypothecation loan is seen mostly in cases of movable properties like stock. Whereas mortgage loan is seen mostly in cases of immovable properties like land. 

Hypothecation meaning in banking is important because this method allows the owner to raise funds from the lender without giving ownership or possession of the asset to the bank. You can offer any vehicle or stock as collateral.

This is all from my end on hypothecation in banking. I hope your doubts have been cleared. If you wish to check your home loan eligibility. You can do so by mentioning details in the widget given below.

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