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. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  3. Loan

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

    A financial institution licensed as a receiver of deposits. There ...
  5. Trader

    An individual who engages in the transfer of financial assets ...
  6. Agency Swap Program

    A form of securitization whereby single-family residential mortgages ...
RELATED FAQS
  1. What is the difference between forward p/e and trailing p/e?

    The forward P/E calculates the price-to-earnings ratio that uses projected future earnings. The trailing P/E, which is the ... Read Full Answer >>
  2. What's the difference between a collateralized mortgage obligation (CMO) and a mortgage-backed ...

    A mortgage-backed security, or MBS, and a collateralized mortgage obligation, or CMO, are different types of asset-backed ... Read Full Answer >>
  3. How can I use value chain analysis to evaluate investment decisions?

    It is possible for an investor to use value chain analysis to evaluate an investment decision since analysis of a company's ... Read Full Answer >>
  4. What is the difference between carrying value and fair value?

    Carrying value and fair value are two different accounting measures used to determine the value of a company's assets and ... Read Full Answer >>
  5. What are the fundamental differences in U.S. GAAP and International Financial Reporting ...

    Public accounting rules in the United States are governed by the generally accepted accounting principles, or GAAP, which ... Read Full Answer >>
  6. Do production costs include all fixed and variable costs?

    In economics, production costs involve a number of costs that include both fixed and variable costs. Fixed costs are costs ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    What's On A Consumer Credit Report?

    A look at the various components and considerations that go into one's credit report and credit score.
  2. Credit & Loans

    The History Of Consumer Credit Rights

    The Fair Credit Billing Act of 1974 gave consumers the power to dispute credit card charges.
  3. Investing Basics

    Explaining Fixed Income

    A person living off a fixed income is usually a retiree receiving a fixed, steady monthly inflow of cash.
  4. Investing Basics

    Calculating Funds from Operations

    Funds from operations (FFO) measures the performance of a real estate investment trust (REIT) and other similar types of investments.
  5. Economics

    Understanding Product Lines

    A product line is a group of related products manufactured by the same company.
  6. Personal Finance

    Protect Your Teen When They Work Over The Summer

    If your child is working a summer job, here are some rules you should know about what he or she is allowed to do.
  7. Credit & Loans

    Save? (Or Prepay Your Mortgage Or Student Loan?)

    With low-interest rate loans, you might be better off paying just your monthly minimum and investing whatever extra funds you have.
  8. Credit & Loans

    Not a U.S. Citizen? A Home Loan is Still Possible

    Many banks and mortgage companies offer conventional and FHA home loans to non-U.S. citizens, if they can verify their work history and financial status.
  9. Investing

    These Investments Have Soared in 2015

    These five investments are on fire and still offer high potential going forward. Here's why.
  10. Investing

    7 Sentences Successful People Never Say

    Success & wealth are not something that can be accomplished overnight. Here, we interviewed more than a thousand millionaires to find out their secrets.

You May Also Like

Hot Definitions
  1. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  2. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
  3. Trailing Twelve Months - TTM

    The timeframe of the past 12 months used for reporting financial figures. A company's trailing 12 months is a representation ...
  4. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known ...
  5. International Financial Reporting Standards - IFRS

    A set of international accounting standards stating how particular types of transactions and other events should be reported ...
  6. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
Trading Center