Vehicle Mortgage or Pledge?
2 Answers
Vehicles can be either mortgaged or pledged. Here are the details: 1. The difference between vehicle pledge and mortgage: The key distinction between vehicle mortgage and pledge lies in whether possession is transferred and whether registration is required. Due to their different characteristics, vehicle mortgages and pledges are suitable for different scenarios. For example, bank car loans for new vehicle purchases typically use mortgage arrangements, allowing customers with financing difficulties to obtain bank loans to purchase vehicles without affecting their usage. If the borrower seeks funds not for purchasing a new vehicle but uses the vehicle as collateral, in private lending scenarios, lenders may prefer pledge arrangements to simplify procedures and enable quick liquidation. Both methods have distinct features, and the choice of collateral method carries different risks for lenders. 2. Vehicle pledge: Article 208 of the Property Law defines pledge as: To secure debt performance, the debtor or a third party pledges movable property to the creditor for possession. If the debtor fails to perform matured obligations or circumstances for realizing the pledge right as agreed by the parties occur, the creditor has priority in receiving compensation from said movable property.
When I was buying a car, I also pondered this issue. At that time, I went to a 4S dealership to inquire about loan options. Generally, in car loans, the vehicle is mortgaged rather than pledged. A mortgage means we continue to drive the car, but the bank or institution has the right to auction the vehicle to repay the debt if we fail to make payments. I remember signing a mortgage contract when I applied for the loan, and a mortgage lien is registered on the car's title. This way, we can still use and maintain the car normally. Pledging is different—it requires handing over the car directly to the lender for safekeeping, which is rare in auto loans. Pledging is usually used for antiques or small items. I think the advantage of choosing a mortgage is greater flexibility, as it doesn’t affect daily car use and carries lower risk. If financial issues arise, we can repay early or sell the car. It’s best to consult a professional financial advisor to avoid complications, especially since a car is a major household investment.
