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Incentives for Loan Repayments: Evidence from a Randomized Field Study

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  • J. Michael Collins
  • Leah Gjertson
  • Justin Sydnor

Abstract

This field experiment tests an innovative approach for helping automobile loan borrowers make their loan payments on time. Borrowers were randomly assigned to a loan with an interest rate reduction after three on†time payments; borrowers assigned to this loan show fewer late payments compared to a control group. While the financial incentive of the interest rate reduction was small, the offer of a rate reduction appears to result in borrowers attending to due dates. This result illustrates that lenders can use simple mechanisms to encourage more positive repayment patterns among borrowers with a history of late payments.

Suggested Citation

  • J. Michael Collins & Leah Gjertson & Justin Sydnor, 2018. "Incentives for Loan Repayments: Evidence from a Randomized Field Study," Journal of Consumer Affairs, Wiley Blackwell, vol. 52(1), pages 197-208, March.
    • Handle: RePEc:bla:jconsa:v:52:y:2018:i:1:p:197-208
    DOI: 10.1111/joca.12142
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    Cited by:

    1. Campbell, Daniel & Grant, Andrew & Thorp, Susan, 2022. "Reducing credit card delinquency using repayment reminders," Journal of Banking & Finance, Elsevier, vol. 142(C).
    2. Burke, Jeremy, 2021. "Do prize-linked incentives promote positive financial behavior? Evidence from a debt reduction intervention," Journal of Public Economics, Elsevier, vol. 204(C).

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