What Is a Pledge?
A pledge is a security arrangement in which a borrower gives the lender possession of personal property as collateral for a debt. If the borrower repays, the property is returned; if the borrower defaults, the lender may sell the pledged property to recover what is owed. The defining feature is that the lender takes possession of the collateral.
Pledge vs. Hypothecation
The key contrast is possession. In a pledge, the lender holds the collateral (a pawnbroker holding jewelry, or a lender holding stock certificates). In hypothecation — such as a car loan or mortgage — the borrower keeps and uses the asset while the lender holds only a lien. Both secure a debt, but only a pledge transfers possession.
Common Examples
- Pledging investment securities to secure a loan
- Pledging valuables at a pawnshop
- Pledging certificates or instruments a lender holds until repayment
Related Terms
- Collateral — The property pledged
- Hypothecation — Pledging collateral without giving up possession
- Lien — The lender's secured claim
Barnes Walker
Barnes Walker's attorneys document and enforce secured-lending and collateral arrangements for Florida borrowers and lenders. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC