In situations with high risks, credit might create further problems for the borrower. Explain.


In situations with high risks, credit might create further problems for the borrower because sometimes when we take loan in a huge quantity and then such kind of situation comes that under that circumstances we become unable to pay the loan and at that time instead of ameliorating the earnings the credit drives the borrower in a condition where convalescence is very tough and agonizing. This situation is known as debt-trap. And in this situation the borrower is pressurized to pay his debts at any cost, either by giving his collateral or his assets which can be useful to the lender in form of guarantee.


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