Classified Loan Law and Legal Definition

Loans that are not paid on time and are nominated as troubled assets by banks are classified loans. Classified loans are usually issued according to terms and regulations of the bank. Bank examiners criticize classified loans as substandard. This occurs under two circumstances:

when information that was not available at the time of issue is uncovered; or

when circumstances with the borrower undergo some sort of change.

Banks designate classified loans as adversely classified assets.