If the government imposed a federal interest rate ceiling of 20% on all loans, who would gain and who would lose?

The International Economy:

More and more investors are seeking returns in both domestic and international markets in an increasingly globalized environment. If the US economy were to grow rapidly, it would pique the interest of international investors.

According to the data, borrowers (firms and individuals) would benefit and lenders (banks and other creditors) would lose if the government enforced a federal interest rate ceiling of 20% on all loans. The maximum interest rate is 20%. If the current market-determined interest rate is less than 20%, as it usually is, this ceiling will be non-binding, and the interest rate will be established by the market. If the market rate is higher than 20%, however, banks are required by law to make loans at 20%. Due to abnormally high-interest rates, the government may have implemented the ceiling, which would have stifled business borrowing and caused an economic downturn. As a result, a lower interest rate will stimulate the economy by increasing borrowing. Furthermore, a legally enforceable price ceiling will result in surplus demand for loans, as at 20%, there will be an excess of borrowers eager to borrow at this rate without sufficient collateral. Furthermore, a legally enforceable price ceiling will result in surplus demand for loans, as there will be more borrowers ready to borrow at 20% than banks prepared to lend at this rate. Borrowers who are successful in obtaining a loan will benefit since they will have to pay a lesser interest rate, but those who are unsuccessful will lose. Banks will lose money since they will now be able to lend out fewer funds at the reduced ceiling rate. Furthermore, a legally enforceable price ceiling will result in surplus demand for loans, as there will be more borrowers ready to borrow at 20% than banks prepared to lend at this rate. Banks will lose money since they will now be able to lend out fewer funds at the reduced ceiling rate.

Therefore, borrowers who are successful in obtaining a loan will benefit since they will have to pay a lesser interest rate, but those who are unsuccessful will lose. The 20 percent interest rate ceiling will be essentially non-binding.