Thus, the financing conditions can be improved with the pledge

Pledge is a concept often unknown to those who wish to access financing. It is about “pledging” a certain asset in order to access financing or more advantageous financial conditions because they reduce the risk of borrowers defaulting on lenders.

In the first place, we must clarify that in no case is the property in question being transferred, but rather movable or immovable property is being delivered as collateral. Which means that you will keep all the rights derived from the property right.

For example, if we pledge shares, the dividend yields continue to be owned by the borrower. Likewise, the rest of the rights are maintained, such as the right to deliberate and vote.

Large amount of assets can be pledged: An inheritance received to meet expenses or inheritance tax, a bank account, various financial products such as investment funds, equity or fixed income securities and others.

Assessing the quality of the pledged object, that is, both the market value and the volatility of prices, the ability to become a liquid asset and the depreciation that may arise, can improve financial conditions to a greater or lesser extent. For this reason, downtown real estate or securities such as the shares of large companies tend to be the best candidates for pledging.

In fact, many investors use pledging to leverage their investments. In this case, the aim is to obtain good returns through the difference between the return on the dividend or the rent and the interest on the loan.

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The most interesting point for the borrower is reduce the cost of the loan and pay the least amount of interest possible. But there are other points of the financial conditions that can be improved, such as the case of early repayment without penalty or the distribution of expenses for the approval of the loan.

Rights and obligations of the parties on the pledged asset

From the point of view of the lender, article 1866 of the Civil Code points out the Lien:

The pledge contract gives the creditor the right to retain the thing in his possession or in that of the third person to whom it was delivered, until the credit is paid.

If while the creditor retains the pledge, the debtor contracted with him another due debt before having paid the first, he may extend the retention until both credits are satisfied, even if the subjection of the pledge to the security of the second debt.

Article 1869 of the Civil Code affects the right of the creditor to exercise real actions about the thing pledged:

As long as the case of being expropriated of the pledged thing does not come, the debtor continues to own it.

Notwithstanding this, the creditor may exercise the actions that fall to the owner of the pledged thing to claim it or defend it against a third party.

In relation to the expenses arising for the conservation of the pledged asset, article 1867 of the Civil Code emphasizes that the creditor must take care of the pledged thing and is entitled to payment of expenses for that purpose. In addition, it is responsible for loss or deterioration.

What if the borrower doesn’t pay? In that case, proceeds to the alienation of the pledge in public auction, quoting the debtor to the owner of the pledge. And if he is unable to liquidate the pledged asset at auction, the pledge becomes the property of the creditor, giving a letter of payment for the entire credit (article 1867 of the Civil Code).

Source: El Blog Salmón by

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