What is the difference between Hypothecation, Pledge & mortgage?

Hypothecation

Hypothecation is a way of creating a charge against the security of movable assets, which is much similar to pledge.(example purchasing a bike from bank loan). The possession and the ownership remains with the borrower.Since the possession remains with the borrower, he may, at any time either create a subsequent charge by way of pledge over same goods or may sell them. In such cases, the rights of the pledgee usually supercedes the rights of the person in whose favour the goods were hypothecated, if the fact of existence of such a charge is not known to the subsequent pledgee..

Pledge Pledge arises when the lender( pledgee) takes possession of either the goods or bearer securities for extending a credit facility to the borrower (pledgor). The pledgee can retain the possession of the goods until the pledgor repays the entire debt amount and in case of a default, the pledgee has the right to sell the goods in his possession and adjust its proceeds towards the amount due.(example Jewel loan)

Mortgage

Mortgage is a type of charge related to immovable property. Immovable property shall include land, benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth. It does not include standing timber, growing crops or grass.

1. Hypothecation is the practice where (usually through a letter ofhypothecation) a borrower pledges collateral to secure a debt or a borrower, as a condition precedent to a loan, or has a third party (usually an affiliate) pledge collateral for the borrower.