Crown Loan

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DEFINITION of 'Crown Loan'

A loan with no set maturity date, These loans are typically made by a wealthy parent or grandparent to a lower income child or grandchild. They are named after Harry Crown, a Chicago industrialist, who first used this type of loan so the borrower could invest the loaned funds and pay less taxes on the income because they were in a lower tax bracket.

BREAKING DOWN 'Crown Loan'

For many years, high-income individuals were able to make loans to lower-income individuals at zero-interest rates or significantly lower rates than those available elsewhere. The borrower could then invest the funds and pay little to no taxes on the earnings from the investment. In 1984, the U.S. Supreme Court finally caught on and ruled that these loans would be subject to gift taxes unless they were made at similar interest rates to the prevailing market rates.

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RELATED FAQS
  1. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  2. When capitalizing interest, will interest accrue while you are in a deferment?

    When capitalizing interest, interest accrues while a person is in a deferment of his loan. In the event of a deferment, the ... Read Full Answer >>
  3. Why is more interest paid over the life of a loan when it is capitalized?

    More interest is paid over the life of a loan when that interest is capitalized because the capitalized interest is added ... Read Full Answer >>
  4. What are some examples of simple interest loans?

    Two good examples of simple interest loans are simple interest car loans and the interest owed on lines of credit such as ... Read Full Answer >>
  5. How can I use the correlation coefficient to predict returns in the stock market?

    Simple interest is most commonly seen in short-term loans, such as those from payday lenders or pawn shops. You might see ... Read Full Answer >>
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    Individuals, businesses and governments use common types of debt instruments, such as loans, bonds and debentures, to raise ... Read Full Answer >>

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