Credit Crunch

Credit crunch means a situation where borrowing becomes much harder because lenders reduce credit availability. In simple terms, a credit crunch happens when banks and lenders become unwilling or unable to lend. A credit crunch is important because it can slow consumer spending, business investment, hiring, and economic growth. It can also increase recession risk. For example, if banks tighten lending after loan losses rise, businesses may struggle to get financing. A credit crunch is not the same as high interest rates alone. It is about reduced access to credit, not only the price of credit.