What is the Difference Between Lien and Pledge?

The main difference between a lien and a pledge lies in their creation and the rights they confer to the creditor. Here are the key differences:

1. Creation: A lien is created by law or by express or implied contract, whereas a pledge is created by a contract between the parties.
2. Possession: A lien is a possessory form of security interest, meaning that when possession of the property is lost, the lien is released. In contrast, a pledge of goods is not lost by the loss of possession.
3. Right to Sell: A lienholder has the right to detain the property or assets until payments are made, but they do not have the right to sell the assets unless explicitly stated in the lien contract. On the other hand, in a pledge, the pledgee (lender) has the legal title to the asset and has the right to sell the asset in the event of default.
4. Examples: A common example of a lien is when a bank grants a loan against marking the lien on customers’ deposits with them. An example of a pledge is when a person pawns their car to a pawnbroker in exchange for a loan, and the pawnbroker has the right to sell the car if the person fails to repay the loan.

In summary, both liens and pledges serve as security interest options for payment of a debt, but they differ in their creation, possession, and rights to sell the assets.

Comparative Table: Lien vs Pledge

The main differences between a lien and a pledge are:

In summary, a lien is a right to detain property or assets until dues are paid, while a pledge is a transfer of possession through a contract, and the pledged property can be sold if the required dues are not paid within a reasonable time.