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Loan repayment plans as sequences of instalments

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  • Hoelzl, Erik
  • Kamleitner, Bernadette
  • Kirchler, Erich
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    Abstract

    Loan repayment can be viewed as a sequence of instalments. Instalments can either fall over time (i.e., repaying more in the beginning and less in the end), rise or stay constant. Three studies investigated whether the well-established preference for improvement (i.e., falling profiles) can also be observed in a loan context. Results show that consumers do prefer falling profiles over rising profiles; however, also a strong preference for constant profiles was found. These preferences for improvement and spreading even outweigh financial benefits. Consumers, hence, may sometimes opt for the financially worse loan option. Financial capability programs could benefit from including information about the perception of sequences.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Psychology.

    Volume (Year): 32 (2011)
    Issue (Month): 4 (August)
    Pages: 621-631

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    Handle: RePEc:eee:joepsy:v:32:y:2011:i:4:p:621-631

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    Web page: http://www.elsevier.com/locate/joep

    Related research

    Keywords: Financial capability Loans Sequences Intertemporal choice;

    References

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    Cited by:
    1. John Gathergood, . "Self-Control, Financial Literacy and Consumer Over-Indebtedness," Discussion Papers 12/02, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    2. Duxbury, Darren & Summers, Barbara & Hudson, Robert & Keasey, Kevin, 2013. "How people evaluate defined contribution, annuity-based pension arrangements: A behavioral exploration," Journal of Economic Psychology, Elsevier, vol. 34(C), pages 256-269.

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