What are some of the legal concerns that can result from unwise use of credit by business and consumers?What is meant by credit?

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akannan's profile pic

Ashley Kannan | Middle School Teacher | (Level 3) Distinguished Educator

Posted on

It is sad to say that this is a timely question. One of the major legal concerns that result from "the credit crisis" is the inability to pay back loans or mortgages.  The housing crisis from which America is slowly emerging was caused by high risk lending practices where individuals engaged in mortgage assigning with little, if any, chance of sustained payment over time.  Borrowing beyond ways and means helped to destroy credit when the time came to pay the principal of such a loan.  This highlights one of the major legal concerns from the unwise use of credit:  The inability to pay back loans and expenditures generated from high risk use of credit.  The notion of assigning "credit" to individuals involves the critical assumption that they would be able to pay back what was borrowed.  In the final analysis, the law becomes the central arbitrator between creditors and those who borrow beyond the capacity to repay what was lent to them.

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

The word credit as used in this question means the willingness of lenders to loan or lend money to customers who may be business firms or individuals. The willingness of lenders to lend is based on their assessment of the capacity and willingness, that is credit worthiness, of the intending borrowers to repay the loan along with interest.

While the lenders make their best efforts to judge the credit worthiness of the borrowers, they can make mistakes. Major changes in economic conditions may impact the credit worthiness rating significantly. Therefore, the borrowers may not always be able to repay the loans they take. The unwise use of credit refers to the borrowers to borrow and spend more money than they can repay.

Unwise use of credit is bad for both borrowers and lenders. The lenders face the prospective of not being able to recover the money that they have lent, and therefore make losses in business. Even when they are able to recover the whole or part of their loans, they may have to spend lot of time and effort requiring expenditure of additional, effort, time and money in recovery process.

Unwise use of credit can create even greater problems for the borrowers. They may be forced, under the threat of legal action, forced to cut down expenses on essential expenses to repay the loans. also their assets such as automobiles and houses mortgaged by them to the lenders may be seized and sold for recovery of the loan.

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