The 7 Basic Concepts: Borrowing
Borrowing is a process that allows people to buy and use goods and services today that they would not be able to do otherwise due to lack of money, by paying for them in future with an additional cost. In other words, by paying progressively in future the amount they borrowed plus an interest.
Important issues regarding borrowing are the purpose and the reasons people borrow, which should always be wise, the amount of capital they borrow, and the ability to repay. Similarly, lenders (usually banks) must approve or reject loan applications based on an assessment of the borrower’s credit history, the purpose of the loan, and its expected repayment potential in the future.
Typically, borrowers with a higher risk are charged with higher interest rates. In principle, this is applicable to all types of borrowers (individuals, businesses, and states). At this point, it is important to highlight that excessive borrowing poses significant risks and increases the chances of total or partial bankruptcy of individuals, organizations or states.
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