In situations with high risks, credit might create further problems for the borrower. Explain.
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Answers
Explanation:
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.
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The situations with high risks, credit might create further problems for the borrower:
(i)The borrower had to pay interest on principal as well as on interest to lenders.
(ii)The lenders can go against the defaulT borrower in the court to recover his principal amount and interest thereupon.
(iii) Sometimes, the lender can sell the security or the assets as collateral pledged with the banks or co-operative society or any informal agency of credit.