DIFFERENCE BETWEEN PLEDGE, HYPOTHECATION, AND MORTGAGE
| Point of Difference | Pledge | Hypothecation | Mortgage |
| Meaning | Pledge means bailment of goods as security against the loan. | Hypothecation is the creation of charge on the movable property without delivering them to the lender. | It is the transfer of an interest in specific immovable property as security against a loan. |
| Type of Security / Property | Movable (Gold, Jewellery, Stock, NSC etc. | Movable (Vehicles, Stock and debtors.) | Immovable (example: house, land, building or any property which is permanently fixed to the earth or attached to the land) |
| Possession of the security / Property | Remains with the lender. | Remains with Borrower. | Remains with Borrower. |
| Examples of Loan | Gold Loan, Advance against NSCs, Advances against goods (also given under hypothecation) | Vehicle Loans, Advances against stock and debtors | Housing Loans |
| Parties | Pledgor and Pledgee | Hypothecator and Hypothecatee | Mortgagor and Mortgagee |
| Remedy for default by the borrower | The lender can sell the asset to recover the debt amount. | Since the lender does not have physical possession, he can file a suit to take possession and dispose of it off to recover the debt amount. | A mortgagee can file a suit in court to take possession of the mortgaged property and sell it to recover the debt amount. |
| Legal definition | Section 172 of the Indian Contract Act defines pledge as “The bailment of goods as a security for the payment of a debt or performance of a promise”. | Section 2 (n) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFESI) Act, hypothecation is defined as “a charge in or upon any movable property, existing or future, created by a borrower in favour of a secured creditor without delivery of possession of the movable property to such creditor, as a security for financial assistance, and includes floating charge and crystallization into fixed charge on movable property” | Section 58 of the Transfer of Property Act 1882 defines mortgage as “the transfer of an interest in specific immovable property for the purpose of securing payment of money advanced by way of loan”. |
