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In simple words, what is the credit crunch?


In simple words, what is the credit crunch?

a situation in which capital is difficult to obtain is called credit crunch. In such a condition, leanders assume and fear that all borrowers will default repayments and hence charge higher interests for loans. this will shrink credit supply and will drive an economy into recession. Banks and investors will be doubtful of returns from loans to corporations and this will reduce the chances of securing loans at lower rates of interest.

Lesser ability to easily aquire a credit (loan), - at a reasonable rate.

People not being able to afford to pay what they owe, if that happens the people who lend money start getting worried that they won't be getting their money back and get a little more cautious who they lend money to.
So credit gets harder to find and more expensive when you can find it.

Hence credit crunch.

Two sides that are closely related:
1. Inability to obtain financing credit
2. Inability to pay down loans previously obtained

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