What is a pledged asset loan?

Typically, pledged-asset loans provide borrowers with better interest rates than unsecured loans. Once the loan is paid off and the debt is fully satisfied, the lender transfers the pledged asset back to the borrower. The type and value of pledged assets for a loan are usually negotiated between the lender and borrower.

What is a negative pledge clause in a loan?

Some loans contain a negative pledge clause or covenant that limits the borrower from using the pledged asset to secure other loans. The asset is merely collateral for the lender in the event of borrower default. However, for the borrower, the pledged asset could help considerably with gaining approval for the loan.

What is a collateral loan?

A collateral loan is a secured loan that requires the borrower to provide an asset as security for repayment. With these loans, a lender can take possession of your property—the loan collateral—if you fail to repay the loan. Common examples of collateral loans include mortgages, auto loans and secured personal loans.