Raju takes a loan of 1 lakh from a bank for his production needs. He utilises the money
efficiently ,makes profit and repays the loan with interest on time as per the credit terms
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In situations with high risks, credit might create further problems for the borrower. This is also known as a debt-trap. Taking credit involves a certain amount of loan that is taken by a borrower from a lender at a high-interest rate. If the borrower fails to pay back the loan amount due to some loss in his job or business, he further falls in the trap of credit. He has to repay the credit along with the interest applied by the lender. This increases the problems for the borrower. In such a situation, he is forced to give up his collateral or asset used as the guarantee, to the lender.
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