Minimum Required Payment and Supplemental Information Disclosure Effects on Consumer Debt Repayment Decisions

Abstract

Repayment decisions—how much of the loan to repay and when to make the payments—directly influence consumer debt levels. The authors examine how minimum required payment policy and loan information disclosed to consumers influence repayment decisions. They find that while presenting minimum required payment information has a negative impact on repayment decisions, increasing the minimum required level has a positive effect on repayment for most consumers. Experimental evidence from U.S. consumers shows that consumers’ propensity to pay the minimum required each month moderates these effects; U.K. credit card field data indicate that borrowers’ credit limit and balance due also moderate these effects. However, increasing the minimum level is unlikely to completely eliminate the negative effect of presenting minimum payment information. In addition, disclosing supplemental information, such as future interest cost and time needed to repay the loan, does not reduce the negative effects of including minimum payment information and has no substantial positive effect on repayments. This research offers new insights into the debt repayment process and has implications for consumers, lenders, and public policy.

Situational Factors Influencing Customers´ Credit Use Online: A Behavioral Economic Approach

“…Further research is, therefore, needed to be able to conclude if these tools have any effect. Personalized information about consumer debt might be more efficient if the focus were on the possible amount saved, as indicated in the research of Navarro-Martinez, Salisbury [32], rather than cost, as a cost focus had no significant effect in this study. The need for and possibilities of efficient measures for supporting consumers' economic decision-making is evident.…”

“…These findings can possibly mirror the findings of this study, as the personalized information about consumer debt was found to have little effect on consumer credit choice when shopping online. The research of Navarro-Martinez, Salisbury [32], as well as the findings of this study, could indicate that a nudge containing personalized information about consumer debt should focus on the possible amount to save rather than the possible costs of the loan, or that other options to reduce consumer debt should be evaluated.…”

“…Further research on how the nudge, with personalized information about credit debt, affects consumer emotions during the purchase decision is needed. The findings of this study as well as the findings of Navarro-Martinez, Salisbury [32], point to changing the formulation of the "nudge" to focus on possible amounts saved rather than cost could yield different results. Another important aspect that could be included is if and how the nudge affects consumer trust with the vendor, which is one of the possible effects on business outcome presented by Kaptein and Parvinen [14] in their research.…”

“…This means that the assumption about difference of effect on different product categories is rejected. Navarro-Martinez, Salisbury [32] did similar research on factors influencing debt repayment decisions in 2011. They looked at the choice between decreasing current utility and decreasing future utility, and whether minimumrequired-payment policy and loan information influenced consumers' repayment decisions.…”

Leave Home without it? The Effects of Credit Card Debt and Available Credit on Spending

“…For example, newly enacted laws now require credit card statements to state explicitly how long it will take consumers to pay off their balances by making minimum payments. Recent research documents that presenting minimum payment information has a negative impact on repayment but that increasing the minimum required level has positive effects on repayment for most consumers (Navarro-Martinez et al 2011). Extensions of our work should explore whether highlighting the credit card balance influences wise or unwise subsequent financial behavior.…”