Overextension

AAA

DEFINITION of 'Overextension'

A loan or extension of credit that is larger than what the borrower can repay. Overextensions can require the borrower to consolidate his or her debts into a single loan. Consumers who must use more than a third of their net income to repay debt other than their mortgage are generally considered to be overextended.

INVESTOPEDIA EXPLAINS 'Overextension'

For securities traders and investors, overextension represents leverage in excess of his or her account equity and buying power. This can greatly amplify losses in a bear market and force the trader to meet steep margin calls. Inability to do this can result in forced liquidation of securities and the freezing of the account.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Bank

    A financial institution licensed as a receiver of deposits. There ...
  3. Loan

    The act of giving money, property or other material goods to ...
  4. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  5. Trader

    An individual who engages in the transfer of financial assets ...
  6. Book Value Reduction

    Reducing the value at which an asset is carried on the books ...
Related Articles
  1. What's On A Consumer Credit Report? ...
    Credit & Loans

    What's On A Consumer Credit Report? ...

  2. The History Of Consumer Credit Rights
    Credit & Loans

    The History Of Consumer Credit Rights

  3. How Does A Reverse Mortgage Work?
    Retirement

    How Does A Reverse Mortgage Work?

  4. When Taking Vows, Vow To Spend Less
    Personal Finance

    When Taking Vows, Vow To Spend Less

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center