Hypothecation

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Hypothecation

Meaning:

Hypothecation refers to a financing arrangement where movable assets, such as cars, bikes, or machinery, are pledged as security for a loan while still being used by the

borrower. The ownership remains with the borrower, but the lender has the right to seize the asset if the loan is not repaid.

Example :

For example, when you take out a car loan, the bank hypothecates the car, meaning they have a claim on it until you pay off the loan.

How to understand hypothecation:

It allows borrowers to obtain loans more easily by offering their assets as security. This arrangement protects lenders from loan defaults by securing their risk.

Importance of Hypothecation:

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Disclaimer

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Hypothecation

It allows borrowers to obtain loans more easily by offering their assets as security. This arrangement protects lenders from loan defaults by securing their risk.

It helps businesses fund their operations by using their inventory or machinery as collateral.