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If the market crashed by 50 percent in a day, I think defaulting on a car loan would be the least of his/your/our worries.
by selectodude 9y ago
If the market crashed by 50 percent in a day, I think defaulting on a car loan would be the least of his/your/our worries.
- toss892625 9y agoThe problem is that there is no car loan in this case; he's paying for the car in cash, and borrowing in the investment account instead. In both scenarios, let's say we have 60k in stocks to start. Starting point: 60k stocks Scenario A: 1 car, (30k car loan), 60k stocks Scenario B: 1 car, 60k stocks, (30k debt in margin account) Let's say the market drops by 50%, then recovers by 100% overnight. At midnight: Scenario A: 1 car, (30k car loan), 30k stocks Scenario B: 1 car, 30k stocks, (30k debt in margin account) Position is closed, so now Scenario B is: 1 car In the morning, the world goes back to normal: Scenario A: 1 car, (30k car loan), 60k stocks Scenario B: 1 car While we had the same amount of debt in both cases, in scenario A, there's no instant way for the car loan provider to instantly declare that you don't have liquidity at midnight.