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Loan repayment plans as sequences of instalments

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

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.

Suggested Citation

  • Hoelzl, Erik & Kamleitner, Bernadette & Kirchler, Erich, 2011. "Loan repayment plans as sequences of instalments," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 621-631, August.
  • Handle: RePEc:eee:joepsy:v:32:y:2011:i:4:p:621-631
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    References listed on IDEAS

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    Cited by:

    1. Gathergood, John, 2012. "Self-control, financial literacy and consumer over-indebtedness," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 590-602.
    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.
    3. McElvaney, Terry & Lunn, Pete & McGowan, FĂ©idhlim, 2018. "Do consumers understand PCP car finance? An experimental investigation," Papers WP586, Economic and Social Research Institute (ESRI).

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