What is a Pledge Loan?

Posted on March 16, 2023 by Kayla Harris

Payday Loans

Have you ever been in a situation where you need some extra cash but don’t want to take out a loan from a bank or credit union? If so, you might be interested in learning more about pledge loans.

Pledge loans are a way for people to borrow money through a secured loan. Continue reading, and you’ll learn more about this type of loan.

Table of Contents

1. What Does a Pledged Loan Mean?
2. What Is a Pledged Asset?
3. What is the Example of a Pledge Loan?
4. Bottom Line

What Does a Pledged Loan Mean?

A pledge loan is a secured loan that you can get from a bank or other financial institution. It’s called a “pledge” because you’re pledging collateral to the lender in exchange for money. The collateral could be anything from land to jewelry to stocks and bonds, but it usually involves real estate. Unlike an unsecured loan, such a financial product has lower interest rates but is mainly available for high-income borrowers.

You’re usually required to repay your loan until the value of your pledged asset has increased enough for you to sell it and pay off your debt. It can take months or even years, depending on what kind of investment you’ve made with your pledged asset.

What Is a Pledged Asset?

A pledged asset is a piece of property given to a lender as collateral for personal loans. While the borrower retains ownership over the asset, the bank or credit union is given a partial ownership interest in the pledge assets used in secured loans. The lender can take possession of the property if you don’t pay back the loan, or it can sell it to get some of its money back.

A pledged asset doesn’t have to be land or real estate, but it must be something that can be sold at auction or in a private sale. Pledged assets can be a great way to get your finances in order. They let you hold onto the things that matter to you while still getting the benefits of a loan.

It sounds scary, but it’s usually not nearly as bad as it is! Here are some examples of what pledged assets might look like:

1. Pledged Asset Mortgage

   A pledged asset mortgage is a collateralized loan provided to a borrower who has pledged an asset as security for the personal loans. The asset is a house or other real estate.

   The borrower uses this asset as collateral for their pledged loans, allowing them to borrow cash on better terms than they would if they had no collateral. The lender will then take possession of the asset if the borrower defaults on their payments.

2. Investments as Pledged Assets

   Investments can be pledged as collateral for a loan, meaning the investment is used to secure the loan. It means the borrower loses their investment if they default on the loan.

3. Savings Account

   You can use your savings account as a pledge to secure the loan. It’s a great way to increase your borrowing power without having to pay a higher interest rate on a loan. As the loan balance reduces during repayment, the pledged amount in savings reduces as well. Just make sure that you have enough money in your savings account to cover the amount you want to borrow.

What is the Example of a Pledge Loan?

One of the most common pledge loan examples is a collateralized mortgage loan. This type of loan allows you to use your home as collateral and borrow under better interest rates. It means that if you fail to repay the loan, the lender can take possession of your home.

Also, this pledged asset loan requires a third-party appraiser’s appraisal and documentation proving ownership of the property being used as collateral.

Bottom Line

When looking for a loan, you must know the available options. A pledge loan is one way to quickly get a large amount of money without waiting for approval for several days.

If you’re looking for a way to improve your financial planning, a pledge loan might be the solution you’re looking for. If so, we hope this article has helped you understand what kind of loan is best for your needs and how to get one.