How can credit be both an asset as well as a debt trap?
Answers
Answer:
Credit is an aggrement between lender and borrower where lender lends money to the borrower and the borrower is having both an asset as well as dept trap if it if the borrower uses it as an asset means I used it for it on Profit then you can be an asset and if he is not able to repay the credit
Answer:
Credit refers to an agreement in which the lender supplies the borrower with money goods or services in return for the promise of future payment.
•Credit as a asset : During the festival season a,shoe manufacturer rohan has received an order of making shoes in bulk within a month's time.To complete production he hired extra workers and has to purchase the raw materials he asks the supplier to supply leather now and promise to pay him later.Then he took some advance payment from the trader by the end ,of the month he is able to deliver the order make a good profit and repay the money he had borrowed .
•Credit as debt trap : A farmer shivani picks up loan from a moneylender to meet the expenses of cultivation.But unfortunately the crop is hit by the pests and fails .So,she is unable to repay the loan and debt grows larger with interest .
Explanation:
In rohan's case credit plays a vital and positive role ,whereas in shivani's case credit pushes the borrowers into a situation from which recovery Is painful .
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