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The Financial Rationality of Consumer Loan Choices: Revealed Preferences Concerning Interest Rates, Down Payments, Contract Length, and Rebates
Author(s) -
WONDER NICHOLAS,
WILHELM WENDY,
FEWINGS DAVID
Publication year - 2008
Publication title -
journal of consumer affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.582
H-Index - 62
eISSN - 1745-6606
pISSN - 0022-0078
DOI - 10.1111/j.1745-6606.2008.00107.x
Subject(s) - payment , loan , rationality , interest rate , actuarial science , consumer choice , conjoint analysis , economics , business , finance , preference , microeconomics , political science , law
A choice‐based conjoint experiment was employed to identify consumer preferences for automobile loan attributes. Respondents prefer loans with low interest rates and moderate contract lengths. Less important are high rebates and moderate down payments. Rebates are most important to choice when down payment is high. Even when choosing among interest‐free loans, respondents do not prefer long terms, conflicting with traditional financial rationality. Respondents appear to focus attention on the first digit of the monthly payment (payment, a function of the other attributes, was provided to respondents). This tendency was stronger among those with less education. Public policy recommendations are discussed.