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. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  2. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  3. Dividend Adjusted Return

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

    A brokerage account in which the broker lends the customer cash ...
  5. Loan

    The act of giving money, property or other material goods to ...
  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. Credit & Loans

    What is an Alt-A Mortgage?

    Called "liar loans" for their low documentation requirements, Alt-A mortgages were hot until the subprime crisis. Now Wall Street wants to bring them back.
  5. Credit & Loans

    A FICO-free Loan? See SoFi's Super Bowl Ad

    Non-bank lender SoFi will air its first TV ad during Super Bowl 50. Here's how it's challenging big banks by providing an alternative approach to loans.
  6. Term

    Who Benefits from Microfinance?

    Microfinance describes banking services provided to low-income people or groups. Specific services offered by microfinance institutions include microloans, micro-savings and micro-insurance products.
  7. Economics

    How Will Rate Hikes Impact The Banking Sector?

    Banks traditionally rally in a rising rate environment but it may be different this time around.
  8. 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.
  9. Credit & Loans

    How To Lend Money To Family And Not Regret It

    Denying a family member’s request for a loan is hard to do, and not too common.
  10. Credit & Loans

    4 Personal Loans Sources for Fair Credit

    Discover the best places to apply for an unsecured personal loan if you have only fair credit, including information on rates and fees.
RELATED FAQS
  1. How can you pay your Walmart credit card?

    Holders of Walmart credit cards can make payments on their balances due by mail, online or at Walmart and Sam's Club stores. ... Read Full Answer >>
  2. Can personal loans be transferred to another person?

    Personal loans cannot be transferred to another person, because these loans are determined based on your unique credit score ... Read Full Answer >>
  3. Are personal loans considered income?

    Personal loans are not considered income for the borrower unless the loan is forgiven. In other words, you cannot be taxed ... Read Full Answer >>
  4. Are secured personal loans better than unsecured loans?

    Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
  5. Can personal loans be included in bankruptcy?

    Personal loans from friends, family and employers fall under common categories of debt that can be discharged in the case ... Read Full Answer >>
  6. Do FHA loans have prepayment penalties?

    Unlike subprime mortgages issued by some conventional commercial lenders, Federal Housing Administration (FHA) loans do not ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center