Non-Purpose Loan
Candlefocus EditorFinancial institutions must disclose whether a loan is a non-purpose loan to the Federal Reserve under Regulation U.1 This law was established to protect investors by ensuring that they are properly informed about their loan options, thereby allowing them to make a more informed decision on whether a non-purpose loan is best suited to their needs.
A non-purpose loan differs from other types of loan products since investors not only have to put up their investment securities as collateral, they also have to agree to a complex structuring of the loan. As part of the loan structure, it is generally possible to receive the benefits of the securities without having to immediately sell them. For example, investors may be able to receive their regular quarterly dividend payment even if the loan is in place, where it might not be possible with other loan products.
Non-purpose loans provide investors with the ability to access additional funds in a secure and structured manner. It is important for investors to understand the various features, benefits, and risks associated with these loan products and how they impact their investments overall. Being properly informed will help ensure sound decision-making when considering whether this type of loan product is suitable for their needs.