Credit repayment decisions: The role of long-term consequence information, economic and psychological factors

Purpose – Information concerning the long-term consequences of credit repayment decisions is often not available for flexible credit facilities such as credit cards. The purpose of this paper is to investigate the role of such information in repayment decisions. A dual mental accounting model of money management predicted that repayments would be influenced by both total cost and loan duration information. Experiment 2 also investigated the role of key economic and psychological factors, including some related to a risk defusing operator model of risk management. Design/methodology/approach – In two questionnaire-based experiments bank customers (n=241; 300) were presented with credit card and remortgage repayment scenarios. In both studies, total cost and loan duration information were varied in a 2×2 randomised-groups factorial design. Findings – In both studies, analysis of covariance showed that information on the long-term consequences of repayment decisions lead to significantly higher levels of repayment. However, in Experiment 2, it was found using hierarchical multiple regression that disposable income, level of education, and the perception of, and worry about, repayment difficulties had larger significant effects on repayment levels. Research limitations/implications – The effects of long-term consequence information were interpreted in terms of mental accounting and future-oriented thinking. The effect of concern with future repayment difficulties suggests that borrowers choose lower repayments to control such risks. Practical implications – Providing total cost and loan duration information for a range of repayment levels could help borrowers make better repayment decisions. Originality/value – These novel findings contribute to our understanding of borrowers’ repayment behaviour.