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Understanding Purpose Credit [Banks & Banking]: A Legal Overview
Definition & Meaning
Purpose credit refers to a type of credit that is specifically intended for certain financial activities. According to federal regulations, it includes:
Credit used for buying, carrying, or trading in securities.
Credit for purchasing or holding any part of an investment contract security, which is considered as credit for acquiring the entire security.
This definition is important for understanding how financial institutions categorize and manage credit related to securities and investments.
Table of content
Legal Use & context
Purpose credit is primarily used in the banking and finance sectors, particularly in relation to securities trading and investment contracts. It is relevant in various legal contexts, including:
Banking regulations
Securities law
Investment management
Users may encounter this term when dealing with financial institutions or when using legal forms related to credit and investment transactions. US Legal Forms offers templates that can help users navigate these processes.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Here are a couple of examples of how purpose credit may be applied:
Example 1: An investor takes out a loan to purchase stocks. The loan is classified as purpose credit because it is used for buying securities.
Example 2: A financial advisor recommends an investment contract security to a client, and the credit used to purchase this security is considered purpose credit (hypothetical example).
Relevant laws & statutes
The primary regulation governing purpose credit is found in:
12 CFR 220.2 - Regulation T, which outlines the requirements and definitions related to credit by brokers and dealers.
Comparison with related terms
Term
Definition
Key Differences
Margin Credit
Credit extended to purchase securities, secured by the securities themselves.
Margin credit is specifically secured by the securities purchased, while purpose credit can be for broader investment activities.
Personal Loan
A loan for personal use, not specifically tied to investment activities.
Personal loans are not restricted to investment purposes, unlike purpose credit.
Common misunderstandings
What to do if this term applies to you
If you believe purpose credit applies to your financial situation, consider the following steps:
Review your intended use of credit to ensure it aligns with the definition of purpose credit.
Consult with a financial advisor or legal professional for guidance on compliance and best practices.
Explore US Legal Forms for templates that can assist you in managing credit agreements or investment contracts.
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