Question

“Credit sometimes pushes the borrower into a situation from which recovery is very painful.” Support the statement with examples.

Answer 1

It is true that credit sometimes pushes the borrower into a situation from which recovery is very painful. It happens in cases like:

1. In rural areas, if crops fail due to natural reasons, it becomes difficult for farmers to repay loans.
2. If a business fails, repaying the loan along with interest becomes hard.
3. In high-risk situations, taking credit can create more problems for the borrower instead of solving them.
4. When a borrower is unable to repay an old loan and takes a new one, the debt burden increases.
5. Poor people who take loans from informal moneylenders often fall into a debt trap because of high interest rates.