Pledging a loan means guaranteeing the return of the money that has been slow to us, leaving a good as a pledge.
Normally, when you apply for a loan, you offer your personal guarantee to respond for your return, that is, you respond with all your assets, present or future. In some cases, the bank or the lender may request an additional guarantee to grant you the money: the pledge of a good. It is about leaving in the hands of the creditor, as a guarantee that you will fulfill your obligation, one or more physical or financial assets: a vehicle, a bank deposit, shares, whose value equals the loan granted. You can do it, as the holder of the loan, or a third party, who instead of acting as guarantor, pledges a property of his property, thus limiting his risk.
Pledge a loan or apply for a home equity loan?
Pledge a loan instead of resorting to a home equity loan (where the payment is guaranteed for the value of the property) is cheaper to contract, since you do not have to pay taxes such as Documented Legal Acts or expenses such as appraisal, management and registration in the Registry. In a loan with pledge you would only have to go to the notary to document the operation in a public deed.
Also, by presenting a pledged asset as an additional guarantee of payment, you may have access to more capital or a more competitive interest rate.
Differences with the mortgage
Unlike a mortgage, in which you can continue to use the mortgaged real estate while you are paying it, when you pledge a loan, the pledged property passes to the creditor, and you cannot use it during the life of the loan. Of course, if it is a financial asset, such as shares or an investment fund, it can continue to generate profitability.
What happens if you take out a loan and stop paying it?
In case you stop paying the pledged loan installments, the bank can execute your right to keep the pledged asset and recover your money. If it is a physical asset, I would take it out for public auction, while if it is a financial asset, you can run it to recover the borrowed capital (for example, if they are shares, you will sell them, and if they are shares of a fund, you will liquidate them).
Find out here about the characteristics and requirements!