Question

Q.21. Which of the following could lead to a debt trap?
a) The high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower.

b) Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.

c) The high interest rate for borrowing can mean that the amount to be repaid is lesser than the income of the borrower.

d) both (a) and (b.)​

Answer 1

Answer:

(a) correct answer

Explanation:

Please follow

Answer 2

Option (d) "both (a) and (b)" could lead to a debt trap. The high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower and Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.

A debt trap is a situation where a borrower becomes trapped in a cycle of debt, unable to repay a loan due to high-interest rates and/or other fees associated with borrowing.

Option (a) states that the high-interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower.

This means that the borrower may struggle to repay the loan, and the debt may continue to grow.

Option (b) states that a higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.

This can lead to a situation where the borrower may have to cut back on other essential expenses, such as food or rent, to make the loan payments, which can increase the risk of defaulting on the loan.

Therefore, both options (a) and (b) could lead to a debt trap.

The high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower.

Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.

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