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. Debt Snowball

    A method of debt repayment in which debtors pay off their smallest ...
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 Our Borrowing Habits Have Changed ...
    Credit & Loans

    How Our Borrowing Habits Have Changed ...

  4. A Look At The Most Popular Bitcoin Exchanges
    Investing Basics

    A Look At The Most Popular Bitcoin Exchanges

Hot Definitions
  1. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  3. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  4. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  5. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
  6. Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena ...
Trading Center