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March 2020
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Charge, pledge and mortgage – all terms are quite similar in terms of security interests offered by banks. These security interests are provided to the lender against borrower’s assets. However, there are some differences between these terms when it comes to ownership of assets. You must know the differences if you are wondering how to apply for loan against property.
CHARGE The charge is divided into two types – fixed charges and floating charges. The fixed charge is a loan of some kind using the fixed asset as collateral for secure payment. It is applied against machinery, land, shares, building and intellectual property like a trademark, copyrights, etc. A floating charge, on the other hand, refers to a loan on the assets that have value, which keeps changing periodically, like stock inventory.
Mortgage
A mortgage loan is actually a contract between the borrower and contractor, allowing a person to borrow money from a lender to purchase a house. The mortgage applies for a property that’s immovable, such as land, building and something that’s attached to the ground. Even when the lender avails the loan amount, the possession of the property remains with the borrower. Pledge A pledge is basically a contract between the lender and the borrower, where the borrower pledges an asset to the pledgee or lender. The lender will be given limited interest on the pledged asset. The possession of pledged asset will be given to the lender and the lender has the legal title to sell the asset if a borrower is not able to meet the obligation. Also Read: Difference between charge, pledge and mortgage Difference between Charge, Mortgage and Pledge? A mortgage and pledge differ from one another in terms of the asset ownership. In a mortgage, the asset remains with the borrower but in case of the pledge, the assent remains with the lender. In the case of charges, the fixed charge is that when the assets must be maintained until the debt is repaid. But in the case of floating charges, the borrower has the freedom to dispose of their assets, such as stocks, for business activities.
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A loan against property enables borrowers to keep their property as collateral. This secured loan can be used to finance wedding expense, handle unforeseen medical expenses, and expand the business among several others. Here are the top three ways customers can use this finance to fund their needs.
1. Pay off debts The smartest way to deal with high-interest loans is by taking help of the low-interest ones. This does not alleviate the pressure of interest rates completely, but at least it decreases the need of paying instalments many folds. Loan against property has a low interest rate as compared to other loans. The former is widely used to deal with the credit card bills. 2. Start a business Lack of fund is the biggest reason people shy away from becoming an entrepreneur. A mortgage loan can be used to kick start a business or expand an existing one. As loan against property has a low interest rate, it becomes manageable to bear it and thrive fund the business at the same time.
3. Pay for higher education
Higher education demands higher fees and loan against property is an ideal solution to support higher education. Higher qualifications also attract higher income, and the low interest rate of this loan is negligible in front of the income raise. Loan against property enables customers to improve skills without incurring a lot of debt. A good CIBIL score fastens the application process to avail this loan. Financial institutions offer customized loan against property to salaried as well as self-employed individuals. Additional Read: Second Mortgage entail a Good Credit Score for Loan Against Property |