Loan repayment plans as sequences of instalments
AbstractLoan 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Psychology.
Volume (Year): 32 (2011)
Issue (Month): 4 (August)
Contact details of provider:
Web page: http://www.elsevier.com/locate/joep
Financial capability Loans Sequences Intertemporal choice;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frisch, Deborah, 1993. "Reasons for Framing Effects," Organizational Behavior and Human Decision Processes, Elsevier, vol. 54(3), pages 399-429, April.
- Matsumoto, Dawn & Peecher, Mark E. & Rich, Jay S., 2000. "Evaluations of Outcome Sequences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 83(2), pages 331-352, November.
- Guyse, Jeffery L. & Keller, L. Robin & Eppel, Thomas, 2002. "Valuing Environmental Outcomes: Preferences for Constant or Improving Sequences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 87(2), pages 253-277, March.
- Dilip Soman & Amar Cheema, 2002. "The Effect of Credit on Spending Decisions: The Role of the Credit Limit and Credibility," Marketing Science, INFORMS, vol. 21(1), pages 32-53, September.
- Marianne A. Hilgert & Jeanne M. Hogarth & Sondra G. Beverly, 2003. "Household financial management: the connection between knowledge and behavior," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 309-322.
- Van Raaij, W. Fred & Gianotten, Henk J., 1990. "Consumer confidence, expenditure, saving, and credit," Journal of Economic Psychology, Elsevier, vol. 11(2), pages 269-290, June.
- Lewis, Alan & van Venrooij, Marlies, 1995. "A note on the perceptions of loan duration and repayment," Journal of Economic Psychology, Elsevier, vol. 16(1), pages 161-168, March.
- Hoelzl, Erik & Pollai, Maria & Kamleitner, Bernadette, 2009. "Experience, prediction and recollection of loan burden," Journal of Economic Psychology, Elsevier, vol. 30(3), pages 446-454, June.
- Sarah Brown & Karl Taylor & Gaia Garino & Stephen Wheatley Price, 2003.
"Debt and financial expectations: an individual and household level analysis,"
Discussion Papers in Economics
03/5, Department of Economics, University of Leicester, revised Feb 2004.
- Sarah Brown & Gaia Garino & Karl Taylor & Stephen Wheatley Price, 2005. "Debt and Financial Expectations: An Individual- and Household-Level Analysis," Economic Inquiry, Western Economic Association International, vol. 43(1), pages 100-120, January.
- Davies, Emma & Lea, Stephen E. G., 1995. "Student attitudes to student debt," Journal of Economic Psychology, Elsevier, vol. 16(4), pages 663-679, December.
- Annamaria Lusardi & Olivia S Mitchelli, 2007. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education," Business Economics, Palgrave Macmillan, vol. 42(1), pages 35-44, January.
- Tokunaga, Howard, 1993. "The use and abuse of consumer credit: Application of psychological theory and research," Journal of Economic Psychology, Elsevier, vol. 14(2), pages 285-316, June.
- Chapman, Gretchen B., 1996. "Expectations and Preferences for Sequences of Health and Money," Organizational Behavior and Human Decision Processes, Elsevier, vol. 67(1), pages 59-75, July.
- Adele Atkinson & Stephen McKay & Sharon Collard & Elaine Kempson, 2007. "Levels of Financial Capability in the UK," Public Money & Management, Chartered Institute of Public Finance and Accountancy, vol. 27(1), pages 29-36, 02.
- Drazen Prelec & George Loewenstein, 1998. "The Red and the Black: Mental Accounting of Savings and Debt," Marketing Science, INFORMS, vol. 17(1), pages 4-28.
- Brown, Sarah & Taylor, Karl & Wheatley Price, Stephen, 2005. "Debt and distress: Evaluating the psychological cost of credit," Journal of Economic Psychology, Elsevier, vol. 26(5), pages 642-663, October.
- Ranyard, Rob & Hinkley, Lisa & Williamson, Janis & McHugh, Sandie, 2006. "The role of mental accounting in consumer credit decision processes," Journal of Economic Psychology, Elsevier, vol. 27(4), pages 571-588, August.
- Lowenstein, George & Prelec, Drazen, 1991. "Negative Time Preference," American Economic Review, American Economic Association, vol. 81(2), pages 347-52, May.
- Overton, Annemarije A. & MacFadyen, Alan J., 1998. "Time discounting and the estimation of loan duration," Journal of Economic Psychology, Elsevier, vol. 19(5), pages 607-618, October.
- Loewenstein, George F & Sicherman, Nachum, 1991. "Do Workers Prefer Increasing Wage Profiles?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 67-84, January.
- Simonson, Itamar, 1989. " Choice Based on Reasons: The Case of Attraction and Compromise Effects," Journal of Consumer Research, University of Chicago Press, vol. 16(2), pages 158-74, September.
- Gathergood, John, 2012.
"Self-control, financial literacy and consumer over-indebtedness,"
Journal of Economic Psychology,
Elsevier, vol. 33(3), pages 590-602.
- John Gathergood, . "Self-Control, Financial Literacy and Consumer Over-Indebtedness," Discussion Papers 12/02, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
If references are entirely missing, you can add them using this form.