Non-Purpose Loan

AAA

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.

INVESTOPEDIA EXPLAINS '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. Loan

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

    A brokerage account in which the broker lends the customer cash ...
  4. Portfolio

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

    When a stock's return is calculated using not only the stock's ...
  6. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...
Related Articles
  1. Introduction to Margin Accounts
    Active Trading Fundamentals

    Introduction to Margin Accounts

  2. Trading Is Timing
    Forex Education

    Trading Is Timing

  3. Finding Your Margin Investment Sweet ...
    Investing Basics

    Finding Your Margin Investment Sweet ...

  4. Is it possible to obtain a loan from ...
    Retirement

    Is it possible to obtain a loan from ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center