call loan

noun
Updated on: 26 Jul 2017

Definition of call loan

  1. :  a loan payable at the discretion of the borrower or on demand of the lender

First Known Use of call loan

1848


Financial Definition of CALL LOAN

call loan

What It Is

A call loan is a loan that the lender may force the borrower to repay at any time.

How It Works

Also called a broker loan or demand loan, a call loan is granted to a brokerage house that needs short-term capital for financing clients' margin portfolios. It may be called by the lending bank at any time. Likewise, the brokerage house may fully repay a call loan without prepayment penalties. Call loans are collateralized using securities, and interest accrues on a daily basis at an unsecured adjustable rate.

Why It Matters

Used to provide capital for margin trading, call loans are a risky financing method for brokerage houses vis-à-vis clients. In addition to quickly accruing interest, call loans may be taken back by the lender at any time, possibly using proceeds from the sale of client securities in the event the brokerage house is not solvent enough to repay the loan with its own cash.

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