Classified Loan

DEFINITION of 'Classified Loan'

Any bank loan that is in danger of default. Classified loans have unpaid interest and principal outstanding, and it is unclear whether the bank will be able to recoup the loan proceeds from the borrower. Banks usually categorize such loans as adversely classified assets on their books.

BREAKING DOWN 'Classified Loan'

Classified loans have failed to meet acceptable credit standards according to bank examiners. The credit quality has essentially declined since initial approval was granted. This type of loan has a high rate of borrower default, and raises the cost of borrowing money for the other customers.

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