Term loans are provided on the basis of the following modes of security:
HYPOTHECATION:
Under this mode of security, loans are provided against the security of movable property, usually inventory of goods. The goods hypothecated, however, continue to be in the possession of the owner of these goods (i.e., the borrower). The rights of the lending institution (hypothecatee)
Depend upon the terms of contract between the borrower and the lender. Although the lender does not have physical possessions of the goods, it has legal right to sell the goods to realize the outstanding loan. Hypothecation facility is normally not available to new borrowers.
PLEDGE:
Pledge as a mode of security, is different from hypothecation in that in the former, unlike in the latter, the goods which are offered as security are transferred to the physical possession of the lender. An essential prerequisite of pledge is that the goods are in the custody of the lender. The borrower who offers security is called a “pawnor” (pledgor), while the lender is called the “pawnee” (pledgee). The lodging of the goods by the pledgor to the pledgee is a kind of bailment. Therefore, the pledge creates some liabilities for the lender.
It must take reasonable care of goods pledged with it. The term “reasonable care” means care which a prudent person would take to protect its property. He would be responsible for any loss or damage if he uses the pledged goods for his own purposes. In case of non-repayment of the loans, the lender enjoys the right to sell the goods.
LIEN:
The term lien refers to the right of a party to retain goods belonging to another party until a debt due to him is paid. The lien can be of two types: particular lien, and general lien. Particular lien is a right to retain goods until a claim pertaining to these goods is fully paid. On the other hand, general lien can be applied till all dues of the claimant are paid.
MORTGAGE:
It is the transfer of a legal/ equitable interest in specific immovable property for securing the payment of debt. The person who parts with the interest in the property is called ‘mortgagor’ and the person in whose favour the transfer takes place is called ‘mortgagee’. The instrument of transfer is called the ‘mortgage deed’. Mortgage is thus conveyance of interest in the mortgaged property. The mortgage interest in the property is terminated as soon as th debt is paid. Mortgages are taken as an additional security for working capital credit by banks
HYPOTHECATION:
Under this mode of security, loans are provided against the security of movable property, usually inventory of goods. The goods hypothecated, however, continue to be in the possession of the owner of these goods (i.e., the borrower). The rights of the lending institution (hypothecatee)
Depend upon the terms of contract between the borrower and the lender. Although the lender does not have physical possessions of the goods, it has legal right to sell the goods to realize the outstanding loan. Hypothecation facility is normally not available to new borrowers.
PLEDGE:
Pledge as a mode of security, is different from hypothecation in that in the former, unlike in the latter, the goods which are offered as security are transferred to the physical possession of the lender. An essential prerequisite of pledge is that the goods are in the custody of the lender. The borrower who offers security is called a “pawnor” (pledgor), while the lender is called the “pawnee” (pledgee). The lodging of the goods by the pledgor to the pledgee is a kind of bailment. Therefore, the pledge creates some liabilities for the lender.
It must take reasonable care of goods pledged with it. The term “reasonable care” means care which a prudent person would take to protect its property. He would be responsible for any loss or damage if he uses the pledged goods for his own purposes. In case of non-repayment of the loans, the lender enjoys the right to sell the goods.
LIEN:
The term lien refers to the right of a party to retain goods belonging to another party until a debt due to him is paid. The lien can be of two types: particular lien, and general lien. Particular lien is a right to retain goods until a claim pertaining to these goods is fully paid. On the other hand, general lien can be applied till all dues of the claimant are paid.
MORTGAGE:
It is the transfer of a legal/ equitable interest in specific immovable property for securing the payment of debt. The person who parts with the interest in the property is called ‘mortgagor’ and the person in whose favour the transfer takes place is called ‘mortgagee’. The instrument of transfer is called the ‘mortgage deed’. Mortgage is thus conveyance of interest in the mortgaged property. The mortgage interest in the property is terminated as soon as th debt is paid. Mortgages are taken as an additional security for working capital credit by banks