Chapter : 3. Money and Credit

Terms Of Credit

Terms Of Credit
Interest Rate :
Every loan agreement specifies an interest rate which the borrower must pay to the bank along with the repayment of the principal amount.
There are two types of interest rate :
(a) Fixed :
This rate is fixed and do not change throughout the loan period.
(b) Floating :
This rate vary according to the bank’s policy and policy of the R.B.I.
Debt trap :
It is a situation which pushes the borrower into a situation from which recovery is very painful.
Collateral :
It is an asset that the borrower owns (such as lands, building, vehicles, livestocks, deposits with bank) and uses this as a guarantee to a lender until the loan is repaid. If the borrower fails to repay the loan, the lender has the right to sell the collateral to obtain payment.

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