Pledge Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Pledge, written in plain English, along with examples of how it is used.
What is Pledge?
v.The act of deposition of one’s personal propert to obtain personal laon of money.Such a property is called collateral property and if the loan amount is not paid within the due date the property will be lost to repay the loan.
History and Meaning of Pledge
Pledge is a term used in the realm of borrowing and lending money. It is the act of depositing one’s personal property (such as jewelry, a car title, or a stock certificate) as collateral to obtain a personal loan. When you pledge your property as collateral with a lender, the property is frozen by the lender for the duration of the loan, and if you’re unable to repay the loan within the given time period, the property will be lost.
The concept of a pledge dates back centuries, primarily in the form of pawnshops. In such operations, a person would deposit an item of value as collateral, and in exchange, receive a loan of money. When the person repaid the loan, they could redeem the item. If they didn't repay the loan, their item would be sold. Today, pledging personal property is a common way of obtaining a short-term loan or securing a line of credit.
Examples of Pledge
Mary wanted to start a business but didn't have enough cash to buy inventory. She decided to pledge her gold jewelry as collateral to obtain a loan from the bank.
Bob wanted to invest in stocks but didn't have enough cash on hand. He pledged his stock portfolio as collateral to obtain a personal loan.
John wanted to buy a car but had poor credit. He pledged the car as collateral to obtain a car loan, and the lender kept the title until the loan was repaid.
Collateral: Assets or property that a borrower offers a lender as security for a loan.
Security Interest: A legal claim on collateral which is granted to a lender when a borrower pledges collateral to secure a loan.
Pawnshop: A business that provides loans in exchange for valuable items of personal property that are held as collateral.