Hypothecation

Hypothecation is where you give something to someone as a guarantee that you will give them something else at a later time. It's like when you lend your friend a toy, and they give you their favorite book as a guarantee that they will give your toy back when they're done playing with it.

For example, if you want to buy a car but don't have all the money to pay for it at once, you might go to a bank and ask for a loan. The bank would ask you to hypothecate something – like your house or car – to guarantee that you will repay the loan. It's like saying "I will give you this thing I own as a promise that I will pay you back." If you fail to repay the loan, the bank may take possession of the hypothecated property to make up for the money you owe them.

Hypothecation is a serious matter, and it's important to always make sure you can pay back the loan before hypothecating something valuable.