A credit crunch is a sudden reduction in the general availability of loans or loan credit, or a sudden increase in the cost of obtaining cheap loans from banks.
There are a number of reasons why banks may suddenly increase the costs of borrowing or make borrowing more difficult. It may be due to an anticipated decline in value of the collateral used by the banks when issuing loans, or even an increased perception of risk regarding the solvency of other banks within the banking system.
A credit crunch may also be due to changes in monetary conditions when the central bank unexpectedly and suddenly raises its interest rates, or a credit crunch may even be due to the central government imposing direct credit controls or them telling the banks not to engage in any further lending activity.
Credit crunches affect us at the most when we struggle to borrow money at times when we need it most, and as Christmas approaches and we are now well into December many people in the UK will be worrying how they are going to pay for the expense of Christmas with the availability of loans being limited.
The effects of the credit crunch have already caused people and businesses to be struggling throughout the course of the year, making it hard to keep up with bills and existing personal loans, and this may make some people consider trying to take out a new personal loan or miss repayments on their existing loans in order to help them out over Christmas.
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