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Class 10 › Economics › Money and Credit
CBSE2026Class Class 10 · Economics1 Marks · Long✅ Verified
Read the following case and choose the correct option :
Megha has taken a loan of Rs. 5 lakhs from bank to purchase a house. The annual rate on the loan is 12% and loan is to be repaid in 5 years in monthly instalments.
The 12% interest charged by the bank to Megha is related to which of the following ?
✅ Answer & Solution
Step 1 - Recall the terms of credit : every loan agreement specifies an interest rate, collateral, documentation requirement and the mode of repayment.
Step 2 - The RATE OF INTEREST is the extra amount the borrower must pay to the lender along with the principal. It therefore represents the COST OF CREDIT - the price paid for borrowing money.
Step 3 - Eliminate others : collateral is an asset pledged as security; duration is the 5-year period; documentation is the paperwork.
