Loan is granted in particular by credit institutions
The financing of goods or services is often made possible in the event of a lack of financial resources by taking out a loan. In addition to private lenders, a loan is granted in particular by credit institutions and provides the borrower with financial resources, which in return must be paid back with additional compensation for expenses (interest).
The taking up of a loan must be carefully considered, because it usually has to be decided whether it can be paid back and whether the taking out is worthwhile over a longer period of time. In addition to the necessary reasons, loans are also taken out to purchase luxury goods. The risk of taking out a loan is that it can no longer be paid back due to low income. In particular, the factual situation of compound interest can lead to further indebtedness despite constant repayment.
Debt trap is attributed in particular to unemployment
The risk of taking out many different loans is particularly dangerous because they add up to an overall loan. Many loans also include a necessary examination of them, because the interest and the term can vary depending on the lender, so that an overview of the total debt and its further development appears difficult. Due to this fact, it can be difficult to keep an overview without intensive computing efforts, so that supposedly cheap and small loans grow quickly and lead to overindebtedness. The situations mentioned can quickly lead to a debt trap, which can usually no longer be dealt with without debt advice or insolvency advice.
From the debtor’s point of view, a debt trap is attributed in particular to unemployment, short-time work, divorce, loss of income and illness. Before taking out one or more loans, you should therefore consider carefully whether they can be coped with according to the situation. The debtor often sees himself as a victim of over-indebtedness, the system and circumstances outside his sphere of influence. Officially, overindebtedness is primarily attributed to poor consumer behavior and insufficient economic education. It should be noted that a debt trap occurs not only among lavish people, but especially among companies and ordinary citizens.