There has been so much said about the credit crunch lately that casual listeners could be forgiven for thinking that it was some new kind of cereal being advertised. Unfortunately, this is not the case. The credit crunch is well and truly here and looks like staying for some time to come. How will it affect the ordinary man in the street? To find out we first need to know exactly what the credit crunch is.

The credit crunch, credit squeeze or whatever other name you care to give it simply means that it is now much harder to get a loan. This is because banks and other lending institutions have tightened the conditions of lending. When money is loaned, the lender needs to be reasonably sure of getting his money back, plus interest. Therefore, he will certainly not lend to anyone who does not have a steady and reliable source of income. Further, the lender will also be very likely to require a deposit on the loan and will probably not offer the buyer a very good interest rate.

This will affect not only homebuyers, but also those who need a loan to start a business, or they may have started a business but need a loan to expand it. The flow-on effect to the nation’s economy can be felt in every sector.