Hypothecate Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Hypothecate, written in plain English, along with examples of how it is used.

What is Hypothecate?

(v) Hypothecate is the act by which a person or entity theoretically transfer the property owned by him, without physically transferring them, to a lender of loan as security for repayment of the loan. The Greek word means ‘pledge’

History and Meaning of Hypothecate

Hypothecate is a term derived from the Greek word "hypothēkē," which means "pledge." In law, hypothecate is defined as the act of offering an asset or property as collateral to secure a loan without relinquishing its ownership. By hypothecating, a borrower offers the lender a security interest in their property, but they retain custody and control over it until the loan is paid back.

The concept of hypothecation has been used in various forms throughout history. In ancient Greece and Rome, merchants often pledged their goods as collateral to borrow money. However, the modern definition of hypothecate began to take shape during the early 18th century as a means to secure payment on loans. Today, hypothecation is commonly used in finance and banking to secure loans, mortgages, and other types of credit.

Examples of Hypothecate

  1. Jane hypothecated her house to secure a mortgage for a new business venture.
  2. The company hypothecated its inventory to secure a line of credit from the bank.
  3. John agreed to hypothecate his car as collateral to obtain a loan from the credit union.

Legal Terms Similar to Hypothecate

  1. Pledge: A pledge is a similar concept to hypothecation but involves the transfer of possession of the asset or property to the lender until the loan is paid back.
  2. Mortgage: A mortgage is a loan in which the borrower uses their property as collateral. Unlike hypothecation, a mortgage involves a transfer of ownership to the lender until the loan is repaid.
  3. Lien: A lien is a legal claim against property that serves as collateral for a debt. It gives the creditor the right to sell or foreclose on the property if the debt is not paid.