Most economists dislike the usury laws because they can be unbeneficial to the people that they are intending to help because they create a lack of funds to loan out. Another reason economists dislike usury laws is because they get in the way with supply and demand (Slavin, 2008).
When the interest rate is high it allows the lenders to borrow out more money but the borrowers aren’t willing to borrow the money with interests high (Slavin, 2008). The usury laws are there to help those that need to borrow money so they set a limit as to not rob people of their money and making it harder for them to pay off their debt. If someone were in need of a loan and there were only high interest rates on the loans, say at 24%, I think it would steer people away from them and maybe try a different way of obtaining the money they needed. It keeps people from being able to pay their balance off quicker. Ultimately you would be paying a lot more just to have had borrowed the money.
Since there would be a limited supply to lend out because there is a set limit to what the interest rate can be then those companies who are lending out to customers are only going to lend out to those who have better credit ratings. Then those who have bad credit or not the best credit are unable to borrow (Slavin, 2008). If there weren’t usury laws then those companies could borrow money to those with a credit rating that isn’t the best but just give them a little higher interest rate.
Economists make good points as to why they dislike usury laws. It sounds good that the government sets a limit on how high companies can set their interest rates at but when you really get in to it you see how it can affect the people who need to borrow money.
Slavin, S. L. (2008). Economics. New York City: McGraw-Hill/Irwin.