Which term describes a security device by which a borrower guarantees payment by delivering collateral?

Which term describes a security device by which a borrower guarantees payment by delivering collateral?

• A. Chattel
• B. Collateral
• C. Security interest
• D. Pledge

Answer: (D)

The concept being tested is pledge. A pledge is a security arrangement where the borrower delivers possession of collateral to the lender to guarantee repayment. Because the lender holds the collateral, they have a tangible asset to fall back on if the borrower defaults, and the collateral is typically released back to the borrower once the debt is paid. This possession-based security distinguishes a pledge from simply having collateral or a security interest, where the borrower may keep possession and the lender’s rights attach more broadly to the asset. Chattel refers to personal property in general, not to the security arrangement itself.

The concept being tested is pledge. A pledge is a security arrangement where the borrower delivers possession of collateral to the lender to guarantee repayment. Because the lender holds the collateral, they have a tangible asset to fall back on if the borrower defaults, and the collateral is typically released back to the borrower once the debt is paid. This possession-based security distinguishes a pledge from simply having collateral or a security interest, where the borrower may keep possession and the lender’s rights attach more broadly to the asset. Chattel refers to personal property in general, not to the security arrangement itself.