Pledged asset definition
/What is a 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 presence of a pledged asset reduces the risk of the lender, 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, though the borrower continues to receive all dividend and interest payments from the security issuers during this period. The exact amount and type of assets to be pledged is decided upon during negotiations between the lender and borrower.
Once the borrower pays off a loan, the lender is legally obligated to transfer all associated pledged assets back to the borrower.