Credit sometimes pushes a borrower into such a situation from which recovery is painful. Explain why example
Answers
Answered by
8
Credit encourages spending. If a control is not kept on expenses paid through credit, it will result in a difficult situation, when it is time to pay the money, to the bank or credit card company.
A person buys an expensive watch using his credit card. Other regular expenses are met using the same credit. When the bank/credit card company’s statement is received at the end of the month, he realises that he has spent more than he can afford. The only way to overcome the situation is by an overdraft or a bank loan, both of which are available only on payment of high interest
A person buys an expensive watch using his credit card. Other regular expenses are met using the same credit. When the bank/credit card company’s statement is received at the end of the month, he realises that he has spent more than he can afford. The only way to overcome the situation is by an overdraft or a bank loan, both of which are available only on payment of high interest
Answered by
1
Answer:
It is true that credit sometimes pushes the borrower into a situation from which recovery is very painful. It happens in cases like :
(i) In case of rural area if crop fails due to natural factors, it will be difficult to repay.
(ii) In case of failure of a business, it will be difficult to repay interest.
(iii) In situations with high risks, credit might create further problems for the borrower.
(iv) In the situation when borrower is unable to pay previous loan and he takes new loan.
(v) Loans taken by poor people from informal lenders sometimes, lead them to debt trap because of high interest rate
Explanation:
Similar questions