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Loan repayment plans as sequences of instalments

  • Hoelzl, Erik
  • Kamleitner, Bernadette
  • Kirchler, Erich
Registered author(s):

    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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    File URL: http://www.sciencedirect.com/science/article/pii/S0167487011000171
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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/joep

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