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Okay, but as the value of the collateral approaches 0 your lender asks you to increase your collateral correct?
by gunshai 5y ago
Okay, but as the value of the collateral approaches 0 your lender asks you to increase your collateral correct?
- odonnellryan 5y agoYes. But banks won't loan 100% on equities. This scenario would just be basically impossible.
- gunshai 5y agoI am not sure you understand my question / hypothetical. A bank is not the only form of a lender first off, second the reason there isn't a 100% loan on an equity is that it's understood that the value of the underlying collateral can fluctuate. These are called over collateralized loans.