in situations with high risk credit might create for the problems for the borrower explain
Answers
Answer:
While credit may help the borrower in initiating his/her business or work, at times in situation of high risk, it may create further problems for the borrower. When the borrower is not able to pay the interest on the loan he/she has taken, the interest keeps on mounting which eventually becomes a huge sum. This pushes the borrower into a debt trap. The borrower, in such a case, has to sell a part of his/her property to repay the loan.
Every buisness,be it agriculuture,industry or service sector,involves risks.Every loan involves the liability of repayment of the amount plus interest .
Loan is taken in anticipation that the income from the use of loan will be more than the amount that is to be repaid.
If it works out favourably like this.Everbody stands to gain,both the lender and the borrower.
But if the enterprise fails, the borrower is in trouble.He will not have any means to repay the loan.He may find himself caught in the debt trap.
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