Question

In situation with high risk credit might create further problems for the borrower explain

Answer 1

Answer:

In situations with high risks, credit might create further problems for the borrower. This is also known as a debt-trap. Taking credit involves an interest rate on the loan and if this is not paid back, then the borrower is forced to give up his collateral or asset used as the guarantee, to the lender.

Answer 2

Explanation:

Money borrowed on higher rates of interest will usually increase the debt burden or debt trap.

Debt trap is a situation where the debtor will not be able to repay the debt incurred.

Informal sources of credit charge higher rates of interest.

For example : Small farmers taking loan from money lenders at higher rates of interest for farming purposes and not able to pay back will result in selling a portion of farmers' land and paying back to the money lender.