Debt Trap is a situation where you add on a new debt in order to pay an existing debt. Generally, when the firm in overlevereged all the credit sources are exhausted, firm arrives at a situation of debt trap.
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A situation in which a person is unable to repay loan is called a debt trap such a situation is found in rural areas where people depend upon informal sources of loan
For example
If a farmer gets loan from a moneylender to buy equipments seeds etc . and decides to pay it back after harvest . due to some reason the harvest goes bad and he is unable to repay the loan .thus he falls into debt
For example
If a farmer gets loan from a moneylender to buy equipments seeds etc . and decides to pay it back after harvest . due to some reason the harvest goes bad and he is unable to repay the loan .thus he falls into debt
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Debt-trap is a situation in which a person after taking a loan is not able to pay back the loan.
It is more common in rural areas because
(i) A borrower repays a loan by selling the agricultural produce, which sometimes may not be enough to repay the loan.
(ii) Rural borrowers normally depend on informal sources of credit who charge a high rate of interest. This repayment of larger amounts may sometimes be larger than their income.
Thus, it can be concluded that loans from banks always help to raise^people’s earning capacity.
It is more common in rural areas because
(i) A borrower repays a loan by selling the agricultural produce, which sometimes may not be enough to repay the loan.
(ii) Rural borrowers normally depend on informal sources of credit who charge a high rate of interest. This repayment of larger amounts may sometimes be larger than their income.
Thus, it can be concluded that loans from banks always help to raise^people’s earning capacity.
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It is a situation in which the borrower is unable to repay the loan back to the lender in a given time period is called debt- trap. This generally occurs in rural areas.
For example- a small farmer takes loan to meet the expenses of cultivation but is unable to return the loan in given time..
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it is the situation in which the loan taken by the borrower creates a situation from which it is very painful and difficult to get out of it. to pay the credit another loan is taken which puts more pressure on the borrower and he is trapped and loses his collaterals which he has given as the security to the sector he is borrowing money.
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A debt trap is a situation which makes loan repayment impossible for the borrower. They had to sell their property or had to get another loan or debt from someone else to pay the previous one.
Credit in this case pushes the borrower into a situation from which recovery is very painful.
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