Can you think of a reason why people in general do not lend money to one another to buy a house or a car? how would your answer explain the existence of banks?

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25-08-2022
Social Studies

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Can you think of a reason why people in general do not lend money to one another to buy a house or a car? how would your answer explain the existence of banks?

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Tutorconsortium218 Tutorconsortium218 · Answer 1 · 2022-09-05T18:14:36+02:00

Final answer :

The reason for people not lending people money to another to buy a house or a car is because It could be difficult to ask a friend or a family member to repay a debt.

What distinguishes open-ended loans from closed-ended loans?

An installment loan, such as one for a car, is a closed-end credit product with a set interest rate and monthly payment.
On the other hand, open-end credit is revolving credit that lets you access money continuously as you make payments and only charges interest on what you spend.

Explanation :

There are several reasons why people don't lend money to one another in general to purchase a home or a car.

These are as follows:-

Open-ended loans to relatives and friends are common. The parties do not agree on a schedule for payments and do not take interest on the loan into account.
With an open-ended loan, the borrower might not be aware of the urgency of loan repayment. If there is no due date, paying back the loan is the borrower's lowest priority.
It might be challenging to ask a friend or member of your family for repayment of a debt.
Being around people who had lent him money made them uneasy. Being around other family members who were aware of the debts was unsettling as well.

To learn more about Closed-end loans, visit:

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