Question

    Which of the following best describes a charge created

    by a borrower in favor of a secured lender upon any movable property, existing or future, without delivery of possession of the movable property to the lender?  
    A Hypothecation Correct Answer Incorrect Answer
    B Pledge Correct Answer Incorrect Answer
    C Mortgage Correct Answer Incorrect Answer
    D Assignment Correct Answer Incorrect Answer
    E Valuation Correct Answer Incorrect Answer

    Solution

    Hypothecation is a financial arrangement where a borrower pledges an asset as collateral for a loan, while retaining possession of the asset. The lender has the right to seize and sell the asset if the borrower defaults on the loan   Hypothecation is commonly used in cases like vehicle loans . For example, when a borrower takes out a car loan, the borrower pledges the car as collateral to the bank. The bank keeps the car as security until the loan is paid off. The borrower retains physical possession of the car, but the bank technically "holds" it .  

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