Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Demand Loan

What it is:

A demand loan is a loan that the lender may require the borrower (a brokerage house) to repay at any time.

How it works (Example):

Also called a broker loan or call loan, a demand loan is granted to a brokerage house needing short-term capital for financing the margin portfolios of clients. The lending bank can demand the repayment of the loan at any time. At the same time, the brokerage house may repay a demand loan all at once without prepayment penalties. Demand loans are collateralized using securities, and interest accrues everyday at an unsecured adjustable rate.

Why it Matters:

Used to supply capital for margin trading, demand loans are risky financing choices for brokerage houses vis-à-vis clients. In addition to interest rapidly accruing interest, repayment can be demanded by the lender at any time, possibly necessitating the use of earnings from the sale of client securities if the broker is not solvent enough to repay the loan using its own cash.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...