Murli: Will the bank ask me to mortgage my land for this loan?
Raju: Yes, the bank will ask for some security against the loan. But it will accept as security the tractor or the house that it has financed. The tractor will be hypothecated to the bank and the house will be mortgaged to the bank.
Raju: Hypothecation and mortgage means that the tractor and the house you have purchased with bank loan will be in your name and possession and you can use them. But the bank will recover the amount from the sale of tractor/house if you fail to repay the loan.
Raju: Only the bank's name will be registered in the books of the Road Transport Authority as 'Hypothecated to' to indicate that the bank has taken the tractor as security for the loan and you cannot sell it without asking the bank.
Raju: Even when you sell it with bank's permission you will first have to repay the bank loan from the money you get by selling the tractor.