Interest Rate Ceilings and the Role of Security and Collection Remedies in Loan Contracts

Neela D Manage

Economic Inquiry, 1990, vol. 28, issue 2, 317-34

Abstract: Collateral or other security for personal loans and restrictions on creditor remedies for the collection of debts have varying effects on the price and quantity of credit, which depend, in turn, on the level of interest rate ceilings. The author reports here on reduced-form equations of a supply-demand model estimated for five states with different interest rate restrictions. Interest rate ceilings limit how far lenders can raise loan rates to compensate for expected default losses, but restrictions on collection remedies are generally associated with a higher interest rate. Copyright 1990 by Oxford University Press.

Date: 1990
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