Page 70 - Understanding Economics for Class 10

Mode of repayment
Collateral

Ans. Loan amount (in Rupees) 5 lakhs
Goyal Brothers Prakashan
Duration of loan 10 years
Documents required Papers showing her employment records
and salary
Interest rate Annual interest rate of 12%
Mode of repayment Paid in monthly instalments for 10 years
Collateral Papers of her new house

 The terms of credit encompass the interest rate, collateral and documentation requirement,
and repayment method.
 It varies substantially from one credit arrangement to another depending on the nature of
the lender and the borrower.

LET’S Work ThESE ouT (Page No. 45)
1. Why do lenders ask for collateral while lending?
Ans. Lenders ask for collateral while lending because it gives safety to the lender in case
borrower fails in making payment/repaying loan. In case borrower is unable to repay the
loan, lender has the right to sell the asset which is given as a collateral by the borrower
to get his money back.

2. Given that a large number of people in our country are poor, does it in any way affect
their capacity to borrow?
Ans. Yes, it definitely affects the capacity to borrow. In villages, farmers who are landless or
owns a small land often lacks in offering collateral and therefore their borrowing capacity
is affected. They don’t have anything to give as a collateral security.

3. Fill in the blanks choosing the correct option from the brackets.
While taking a loan, borrowers look for easy terms of credit. This means ________ (low/
high) interest rate, ________ (easy/ tough) conditions for repayment, ________ (less/more)
collateral and documentation requirements.
Ans. While taking a loan, borrowers look for easy terms of credit. This means low interest rate,
easy, conditions for repayment, less collateral and documentation requirements.

variety of credit arrangements
Example of a village

After reading about the terms of credit in class, Rohit and Ranjan were curious to know about
the various credit arrangements that existed in their area:
To get all this information they decided to talk to some people in their village.

On 15th November, 2019, they went directly to fields where most farmers and labourers would
be working potato crops were planted in the fields.

Economics Class X E-61