What is a Pledge Loan? (Step-by-Step application Guide)

Written by Shalini Kapoor
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Reviewed by Daisy Martinez
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Blurb: What is a pledge loan? In this article, we will walk you through the most vital information about it, as well as how you can apply for one! 

Pledge loans are secured loans that require borrowers to pledge assets or anything of value to the lender for security. Commonly, a savings account or a certificate of deposit (CD) are the ones surrendered to the lender. 

Pledge loans offer various benefits–lower interest rates compared to unsecured personal loans, among others. 

So, in this article, we will be going over what a pledge loan is complete. We’ll discuss what it is, give a few examples, and also underscore the risks of applying for one. 

What Is a Pledge Loan?

A pledge loan, also known as a secured loan or savings-secured loan, permits you to borrow capital while using the money in your savings or certificate deposit as collateral. 

The amount you may borrow depends on how much money you have saved, making it a flexible alternative for many people.

Let’s take a look at other things involved in pledge loans. 

Pledged Asset

A pledged asset is a valuable item or property that a borrower offers as security to the lender in order to obtain a loan. This serves as the safety net of the lender, in case the borrower runs across a problem with the loan.

Just because it’s labeled as an asset, doesn’t mean that it needs to really be “an asset.” Pledged assets can include tangible items like real estate, vehicles, stocks and bonds, and even payment certificates. 

Pledge Loan Example 

If you’re unable to wrap your head around the idea of pledge loans, here’s a concrete example: 

You’re trying to apply for a loan to purchase a new car but don’t have the required credit score or financial history to qualify for a traditional loan. So, what you do instead is choose to get a pledge loan by offering your existing vehicle or other valuable assets as collateral. 

The lender assesses the value of your pledged asset and approves the loan based on its worth. 

Depending on the agreement on how you need to repay the loan, the lender has the right to seize the pledged asset to recover their losses, if the agreement is not followed. 

Pledge Loan vs. Secured Loan 

A pledge loan is a type of secured loan where you provide a pledged asset as collateral. Both pledge loans and secured loans require that you offer some form of tangible property to secure the borrowed amount. 

To help you understand it better, here’s a table that outlines their differences: 

Pledge LoanSecured Loan
Credit CheckUsually, no credit check is necessary as the collateral backs and safeguards the loan itself. A review of credit is frequently required as part of the approval procedure. Better credit scores can lead to better and more favorable terms. 
Interest RatesInterest rates are often higher and more lucrative as a result of the lender’s increased risk.Because of the collateral and set agreements, interest rates are often lower.
Loanable AmountThe value of the pledged object is limited, which is generally a percent of its appraised worth.The amount can be determined by the credit score, the value of the collateral, and the terms set.
Application ProcessSimple and quick application process, often without extensive paperwork.More extensive application process involving credit checks and documentation.
Repayment TermsShorter repayment terms compared to bank and other similar institution-offered loans.Credit checks and paperwork are required as part of a more thorough application procedure.

They’re similar in the sense that they both need to have some form of security for the lender, but different in terms of application processes and requirements.

Secured Loans vs. Unsecured Loans

The necessity of collateral is a key distinction between secured loans and unsecured loans. Secured loans require you to put some type of collateral on the line. This provides the lender with a sense of security, whereas unsecured loans do not. 

As a result of the lender’s increased risk, unsecured loans often have higher interest rates and tougher repayment requirements.

So, if you’re looking to consider a pledge loan or other financial options, it’s critical to weigh the potential risks involved or the benefits that come with it. 

NOTE: Remember that by pledging your assets, you are linking them to your loan commitments, which may have an impact on your financial condition if you happen to default on your payments or if a part of the agreement is not followed.

How Does a Pledge Loan Work?

Since we now know what a pledge loan is, it’s time to gain a full and better understanding of how it pans out. 

Here’s how it works: You pledge an asset (like your car or savings account) as collateral. The lender then freezes these assets until you’ve fully repaid the loan. 

In the event that you default on your repayments, or if the agreement was not followed (discretion of the lender), the lender can claim your asset to recoup their losses.

Pledge loans can offer benefits like lower interest rates and larger loan amounts since they have security through the collateral they give. 

However, they also carry risks. If you default on your repayments, you could lose your pledged asset. So, it’s crucial to understand the terms before agreeing to a pledge loan. We’ll discuss more of that in the latter part of this article.

Who Are Pledge Loans For? 

Pledge loans are a good choice for those who need money but don’t want to liquidate their resources or pay exorbitant interest rates on unsecured loans. 

They can also help in developing or restoring credit history, because lenders may be more inclined to grant loans with collateral. So you can get your credit straight while being approved for a loan.

What Are the Benefits and Drawbacks of Pledge Loans?

Pros and Benefits of Pledge Loans

Pledge loans provide several benefits to borrowers. It’s often undermined and seen as small things, but, if you look closely, you’ll indeed find that they’re beneficial//

  • Fixing Your Credit: One of the main advantages is that they offer you a chance to build or repair your credit. Pledge loans typically ask for collateral upfront. By making timely payments, you demonstrate responsible credit behavior, which can improve your credit score over time, all the while without engaging your scores.
  • Lower Interest Rates: Another pro is that the interest rates on pledge loans are generally lower than unsecured loans because the lender has collateral to fall back on in case of default. This can result in lower monthly payments, longer repayment times, and better terms.
  • Easily Accessible: Compared to other loan kinds, a pledge loan could be easier and better for many borrowers. Using your savings or certificates of deposits as collateral might assist in showing lenders that you’re a lesser-risk borrower if you have a bad credit score or a short credit history. 

Cons and Drawbacks of Pledge Loans

Before you apply for a pledge loan, try to consider the following cons and drawbacks to save you from a lot of headaches! 

  • Risk of Default: Default happens when you don’t follow the lender’s specified repayment terms. Your credit score may suffer if you default on a pledge loan, making it harder for you to get new loans or credit lines in the future. In the event of a default, the lender may pursue legal action to compel debt repayment.
  • Losses from Collateral: When taking out a pledge loan, you put up assets as collateral, such as cash, real estate, stocks, or bonds. The lender will have the right to seize and sell the collateral to recoup its losses if you don’t make the required loan installments. As a result, you risk losing your priceless goods.
  • Late Payments and Penalties: Last but most definitely not least is repayment of pledge loans. It’s crucial to repay your loan on time, because, when you make late payments, not only does it shove your credit score lower, but it also often results in additional fees or penalties.
  • Before deciding to take out a pledge loan, it is crucial to be aware of these dangers and disadvantages. Review the loan agreement in detail and think about your financial condition to be sure a pledge loan is the best choice for you.
  • Overall, pledge loans offer a mix of benefits and drawbacks. Understanding both the pros and cons is crucial for making an informed decision about whether this type of loan is right for you.

How To Apply For a Pledge Loan? Simplified Step-by-Step Guide

If you’re interested in applying for a pledge loan, you first need to make sure that you are within the means and ranges of being approved for one. It’s not like a swimming pool that you can just jump into, without knowing the benefits and risks involved. 

Here’s a simple step-by-step guide on how you can apply for a pledge loan.

Step #1: Assess Your Financial Status

Start by checking your credit score, income, and overall financial stability. 

These factors will be evaluated by the lender to determine your ability to repay the loan. You should also calculate your debt-to-income ratio, which compares your monthly debt payment to your monthly gross income. 

This ratio can help you understand how much of your salary should go towards loan repayments.

Step #2: Prepare the Needed Documents

Gather necessary documents such as recent pay stubs, credit reports, and a statement of assets you plan to pledge as collateral. Photocopy it to ensure that you have multiple copies, just in case a lender asks for it. 

These assets could be anything from real estate, vehicles, and equipment, to investment accounts. Ensure that all documentation you will present is valid and legal. 

Step #3: Research and Look For the Best Lenders

Compare different lenders considering their loan amounts, interest rates, and repayment terms. Choose one that aligns with your financial goals.

If there is one thing we’re sure of, there will never be a shortage of lenders in the market. Wherever you go and whatever you are looking for, there’s definitely a lender right around the corner. 

Step #4: Wait For Approval 

After submitting everything, wait for the results from the lender. The lender will review your application and check on everything you submitted. They will check and assess if it fits what they’re looking for. 

Be patient and stay in touch for updates or additional information requests.

NOTE: Avoid following up if it’s been less than a week. Do the follow-up in the second week. 

Step #5: Check Loan Terms 

Once approved, carefully review the loan terms including the repayment schedule and fees involved. You need to gain a full understanding of what you are about to partake in, and you don’t want to be clueless about it, as well. 

Along with that, you also need to understand your responsibilities before accepting the loan.

Step #6: Manage Loan 

Remember, if you default on the loan, the lender may seize your pledged assets. Make timely payments and communicate with the lender if issues arise during repayment.

You may also want to check out Navy’s pledge loan offer: PDF Certificate Pledged Loans.

Overall, a pledge loan can be a valuable financial tool if you use it correctly. However, it can also pose risks if it’s left and not managed responsibly. 

In the event of defaulting on the loan, the lender may seize the pledged assets to satisfy the outstanding debt. Therefore, it is essential to make timely payments and communicate with the lender if any issues arise during the repayment process. 

With proper planning and management, a pledge loan can help you achieve your financial goals while minimizing potential risks.

Alternative Options to Pledge Asset Loans

When considering financing options, it’s essential to explore alternatives to pledge asset loans. Pledge loans aren’t the only loans you can get. There are other loan types you can take advantage of if you find that pledge loans won’t cut it for you. 

So, what other options do you have in accessing capital instead of pledge loans?

Unsecured Loan

An unsecured loan is a type of loan that doesn’t require any collateral. Instead, it relies on your credit history and financial stability. Examples of unsecured loans include personal loans, student loans, and credit cards. 

The interest rates for unsecured loans are typically higher than those for secured loans due to the absence of collateral, and trust is the only thing on the line. 


A mortgage is a specific type of secured loan where the property you’re buying serves as collateral. There’s also a variant known as a pledged asset mortgage, which allows you to use other valuable assets as collateral in addition to, or instead of, a down payment.

Passbook Loan

Another type of secured loan is a passbook loan, which uses your savings account as security. The lender keeps your passbook or savings account book while you pay back the debt. 

Since the lender has some sort of security, these loans often have lower interest rates than unsecured loans do.

Credit-Builder Loan

One of these quick loans aimed at helping you establish and strengthen your credit is a credit-builder loan. 

Usually, a savings account or a certificate of deposit serves as collateral for these loans. A credit-builder loan’s primary goal is to demonstrate your capacity to make payments on time in order to raise your credit score.

Secured Credit Card

Similar to a standard credit card, a secured credit card functions with collateral—typically, a cash deposit—as security. Usually, the deposit is the same as the card’s credit limit. 

You could be qualified for an upgrade to an unsecured credit card if you’ve developed a history of prudent usage.

You might find it useful to weigh the benefits and drawbacks of pledge loans, secured loans, personal loans, mortgages, and other loan types before choosing the best choice for your financial requirements. Remember to weigh all of your options and consult with financial professionals before deciding.

Frequently Asked Questions

Do you get money from a pledge loan?

Yes, you do! It’s a “loan,” therefore, you will get an amount that you agreed to, in exchange for a collateral or a property that you have. 

What are the requirements for a credit union pledge loan?

To qualify for a credit union pledge loan, you must: 

  • Be a member of the credit union
  • Have sufficient funds in your savings or certificate account to cover the loan amount.

NOTE: The requirements may vary between credit unions. However, if you have a good credit score and a solid repayment history, it can be your edge to see success in the application process.

What are the interest rates for pledge loans?

Interest rates for pledge loans tend to be lower than traditional loans since they are secured. The exact interest rate may vary based on the credit union or bank providing the loan, as well as your credit history and financial situation. It’s important to compare rates from different lenders to find the best option for your needs.

Which banks offer pledge loan services?

Right now, many banks and financial institutions offer pledge loans. They usually have member-focused programs, and pledge loans is considered one of them. 

Besides pledge loans, most banks offer similar secured loan options to members. 

Are pledge loans a good financial option?

Yes, they can be a good option if you’re looking to borrow money without cutting a piece off your savings account.

These loans are known for lower interest rates than unsecured loans. Moreover, they don’t require the liquidation of your savings account. 

The only drawback is that you wouldn’t be able to access your savings, if you put your account as the collateral.

What occurs after paying off a pledge loan?

Once you have paid off the pledge loan, your savings or certificate account is released from being held as collateral. This means your funds are now fully accessible and you can use them as you wish. Additionally, regular repayment of the pledge loan can improve your credit score and strengthen your credit history.


Do you anticipate taking out a pledge loan in the near future? In light of your present financial condition, is it something you can utilize and benefit from? 

Take note that pledge loans can also help you build credit, as shown by the example of a savings pledge loan, where your savings account or certificate account serves as collateral against the borrowed amount.

As you navigate the world of pledge loans, bear in mind that it’s important to be aware of your alternatives and to fully understand the terms and conditions of any financial agreement you enter. 

By carefully weighing your options and selecting the finest pledge loan for your needs, you can confidently move closer to achieving your financial goals.


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Shalini Kapoor

Shalini Kapoor is a dedicated financial writer and editor at cashsavvytips.com. Currently pursuing her Master's in Accounting, she possesses a unique blend of academic rigor and practical insight into personal finance. Shalini is fervent about empowering individuals with actionable financial advice, grounded in her in-depth studies and natural flair for simplifying complex topics. As an editor, she ensures every piece of content meets the highest standards of accuracy and relevance. With a passion for continuous learning, Shalini is not just sharing knowledge but also constantly expanding her own, to benefit the readers of cashsavvytips.com.

Disclaimer: The opinions, analyses, and information expressed by this author are for informational purposes only and do not constitute financial, investment, or other professional advice. Always conduct thorough research and consult with a professional before making any investment decisions.

3 thoughts on “What is a Pledge Loan? (Step-by-Step application Guide)”

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