Choose whether the statement is true/false.

High-interest rates result in a debt trap.

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True

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answer is A.

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Detailed Solution

The above statement is true.
A debt trap occurs when it becomes difficult to repay the loan, and the borrower incurs more debt to cover the outstanding balance. Higher interest rates or changes to the terms and circumstances of debt may result in a debt trap situation. Debt traps typically lead to missed payments or bankruptcy, a compensation scheme that tempts people to undertake long-term debt commitments on terms that greatly benefit the lender. Debt trap victims are frequently deterred from paying off the debt using strategies such as extraordinarily high or changeable interest rates, shifting payment schedules, and unreasonable fines for late payments. The debt trap is a vicious cycle.

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