Which term describes the recurring pattern where a borrower takes out new loans to pay off old ones, creating a cycle of increasing debt?

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Multiple Choice

Which term describes the recurring pattern where a borrower takes out new loans to pay off old ones, creating a cycle of increasing debt?

The pattern being tested is a debt cycle, sometimes called a debt spiral, where a borrower keeps taking new loans to pay off existing debt. This creates a loop: the balance grows because interest and fees keep accruing, and the borrower eventually relies on even more borrowing to cover payments. It’s a risky, escalating situation that can lead to default if new credit isn’t available or affordable. This is different from being delinquent (missing payments), deferring payments (temporarily postponing them), or bankruptcy (a legal discharge of debts). A practical way to recognize it is to see a sequence where each new loan is used to pay the previous one, rather than addressing the underlying financial need or reducing balance.

Which term describes the recurring pattern where a borrower takes out new loans to pay off old ones, creating a cycle of increasing debt?

Boost your loan knowledge and credit scores understanding. Study with quizzes and detailed explanations. Prepare for your test with relevant questions and expert guidance.

Which term describes the recurring pattern where a borrower takes out new loans to pay off old ones, creating a cycle of increasing debt?

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