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.

  1. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  2. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  3. Dividend Adjusted Return

    When a stock's return is calculated using not only the stock's ...
  4. Loan

    The act of giving money, property or other material goods to ...
  5. Margin Account

    A brokerage account in which the broker lends the customer cash ...
  6. Debt/Equity Ratio

    Debt/Equity Ratio is debt ratio used to measure a company's financial ...
Related Articles
  1. Active Trading Fundamentals

    Introduction to Margin Accounts

    Find out what your broker is doing with your securities when you invest on margin.
  2. Forex Education

    Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.
  3. Investing Basics

    Finding Your Margin Investment Sweet Spot

    Borrowing to increase profits isn't for the faint of heart, but margin trading can mean big returns.
  4. Economics

    How US Interest Rates Move the World Economy

    Because the US has the world's largest economy, fluctuations in America's interest rates affect much more than domestic growth
  5. Budgeting

    Best 5 Money-Saving Tips to Get out of Debt

    Understand the different types of debt and the reasons why people get into debt. Learn about five tips to follow to get out of debt.
  6. Savings

    The 5 Best Alternatives to Bank Saving Accounts

    Find out about some of the most profitable available alternatives to depositing money in a traditional bank passbook savings account.
  7. Professionals

    Socially Responsible Lending Goes Mainstream

    The solid rates of return that socially responsible lending has posted has caught the attention of institutional investors. Here's a primer.
  8. Retirement

    Eyeing a 401(k) Loan? There Are Better Options

    A 401(k) loan may sound good but it's not worth the risk. Here are other options that allow you to leave your retirement funds untouched.
  9. Professionals

    401(k) Loans: The Good, the Bad and the Ugly

    Borrowing from your 401(k) is ready cash from the best possible lender: you. Here's the upside and downside to using the money before retirement.
  10. Credit & Loans

    Mortgage Broker vs. Direct Lenders: Which is Best?

    There are key differences between mortgage brokers and direct lenders. Here's how to choose which is best for you.
  1. When do I need a letter of credit?

    A letter of credit, sometimes referred to as a documentary credit, acts as a promissory note from a financial institution, ... Read Full Answer >>
  2. Can I take my 401(k) to buy a house?

    Once you reach 59.5, you can use the funds in your 401(k) retirement savings account to buy a house or any other expense ... Read Full Answer >>
  3. Can I use my 401(k) as a collateral for a loan?

    Although federal Internal Revenue Service, or IRS, regulations prohibit using a 401(k) account as collateral for a loan, ... Read Full Answer >>
  4. Why do commercial banks borrow from the Federal Reserve?

    Commercial banks borrow from the Federal Reserve primarily to meet reserve requirements when their cash on hand is low before ... Read Full Answer >>
  5. 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 >>
  6. What are the typical repayment terms for a syndicated loan?

    The typical repayment terms for a syndicated loan are periods of three to six years for short-term loans or seven to 10 years ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!