Non-Purpose Loan

DEFINITION of 'Non-Purpose Loan'

A type of loan that uses an investment portfolio as loan collateral and the proceeds of which can not be used to purchase, carry or trade securities. This type of loan allows investors access to funds without having to sell their investments. Regulations require financial institutions to disclose whether a loan is a non-purpose or purpose loan, and borrowers are required to indicate the purpose of the loan.

BREAKING DOWN 'Non-Purpose Loan'

With a non-purpose loan, investors continue to receive the benefits of their portfolio holdings, such as dividends, interest and appreciation. If the value of the pledged securities declines, however, the lender may require that additional securities be put up as collateral or that part of the loan be repaid to make up for the decrease in collateral. This type of borrowing is considered an alternative to traditional margin borrowing because it allows multiple investment accounts to be used to secure a loan.

RELATED TERMS
  1. Direct Consolidation Loan

    A loan that combines two or more federal education loans into ...
  2. Call Loan

    A loan provided to a brokerage firm and used to finance margin ...
  3. Standing Loan

    A type of loan where payments are made of interest only. Repayment ...
  4. Future Advance

    A clause in a mortgage which enables the lender to advance funds ...
  5. Refinance

    1. When a business or person revises a payment schedule for repaying ...
  6. Collateral

    Property or other assets that a borrower offers a lender to secure ...
Related Articles
  1. Credit & Loans

    Understanding Loans

    A loan is the act of giving money, property or other material goods to another party with the expectation of being repaid.
  2. Credit & Loans

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
  3. Credit & Loans

    When Are Personal Loans a Good Idea?

    You never want to borrow money for frivolous reasons, but these five circumstances might warrant it.
  4. Economics

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  5. Credit & Loans

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  6. Options & Futures

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  7. Credit & Loans

    All About Government Loans

    There are many reasons to seek a government loan rather than one from a private lender. Government loans typically have low interest rates and offer fixed or subsidized options, as well as deferred ...
  8. Credit & Loans

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
  9. Credit & Loans

    College Loans: Private vs. Federal

    Not all student loans are the same. Know what you're getting into before signing on the dotted line.
  10. Credit & Loans

    Commercial Real Estate Loans

    Obtaining a commercial real estate loan is quite different from borrowing for residential real estate. Here's what to expect and how to get what you need.
RELATED FAQS
  1. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  2. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
  3. What are the typical requirements to qualify for closed end credit?

    Learn what closed-end credit is, and the various requirements that borrowers must meet in order to obtain a closed-end credit ... Read Answer >>
  4. What are the differences between delinquency and default?

    Find out more about loan delinquency, loan default, and the difference between a loan borrower defaulting and being delinquent ... Read Answer >>
  5. How does investing your student loans for profit actually work?

    Can you use subsidized and unsubsidized loans? How much higher does the interest rate of the investment have to be than the ... Read Answer >>
  6. When is it a good idea to take out a loan to invest?

    The only time it makes sense to invest a loan is when the return on investment of the loan is high and the risk level of ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center