Pledged asset

A pledged asset is an asset that is being used as collateral on a loan. A pledged asset reduces the risk of the lender, since it can take possession of and sell the asset if the borrower defaults on loan payments. Since the risk of the lender is reduced, the borrower may be able to negotiate for a reduction in the interest rate charged.

Depending on the situation, the lender may require the borrower to deposit cash or securities (the pledged asset) in an account that the lender controls. By doing so, there is no question that the lender can access the asset in the event of a loan default. The exact amount and type of assets to be pledged is decided upon during negotiations between the lender and borrower.

Related Courses

Corporate Finance 
Treasurer's Guidebook