Social Science — CBSE Class 10 board question

The three important terms of credit are:

1. Interest Rate – The borrower must pay interest on the principal amount along with repayment. Interest rates vary between formal and informal lenders (e.g., 8.5% p.a. for bank loans vs. 60% p.a. from moneylenders).

1. Collateral – An asset owned by the borrower used as a guarantee to the lender until the loan is repaid. If the borrower fails to repay, the lender can sell the collateral to recover the money.

1. Documentation and Mode of Repayment – Lenders require proper paperwork (proof of income, land records, etc.) and agree on how and when the loan will be repaid.

Source: Chapter 3 – Money and Credit, Variety of Credit Arrangements

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• CBSE expects students to name all three terms clearly and give a brief explanation with an example where possible.
• Interest rate and collateral are explicitly discussed in the chapter; documentation/repayment mode is the third standard term.
• Mention the contrast between formal (low interest, collateral needed) and informal (high interest, no collateral) to score full marks.
• Do not write long paragraphs — three labelled points are the cleanest format for this type of question.