Hypothecation Loan

A hypothecation loan is a financial arrangement in which a borrower pledges movable assets as security to obtain credit without transferring ownership of the asset to the lender. This type of loan is commonly used for financing vehicles, machinery, inventory, or other movable assets.

In a hypothecation agreement:

• The borrower retains possession and use of the asset.

• The lender holds a legal charge on the asset and can repossess it if the borrower defaults on repayment.

• Interest rates and loan terms depend on the value and type of asset pledged, as well as the borrower’s creditworthiness.

These loans are widely used by businesses to maintain liquidity while leveraging existing assets and by individuals for vehicle financing. The key advantage is that it allows access to funds without selling the asset, while the risk for the lender is mitigated by the asset as collateral.