What is debt trap mention any two factors responsible for debt trap?
Answers
Debt trap basically describes a dire situation in which the debt is simply impossible to be repaid mainly due to various financial factors.
Explanation:
Factors responsible for debt trap:-
a) Limited or short repayment terms-One of the foremost reasons leading to death trap can be very short or limited time for repayment of both the interest and principle.These loans are short term and usually have to be paid in full instead of installment payments.Many of the borrowers, especially from poor or low income households have difficulty repaying the loan amount and thus can face potential loan default.
b) Loan Rollover-In this case,the borrowers are given an option to repay only the interest amount accrued on the actual loan and an additional term to repay the principle.However, this additional repayment term comes with an additional interest payment and the borrower is imposed with a new interest rate on the same principle amount leading to an extra financial burden on the borrower.
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Debt trap ↴
A situation in which a debt is difficult or impossible to repay is called as debt trap.
It is caused due to HIGH INTEREST.
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