Loan Amount versus Monthly Payments: The Effect of Loan Application Formats on Consumer Borrowing Decisions

Abstract Do different loan application formats affect consumer requests? Six studies show that when consumers are asked to provide a preferred monthly payment (vs. amount), they request principal amounts. This is because these differ in the scale-compatible information bring consumers’ mind. When amounts elicited, think of and cost expenditure seek finance. payments however, their budget slack construct then perceive be affordable. For lower loans with given term interest rate, amount) format results larger requests. effect reverses for higher acquisitions individuals’ caps out around $500 per month. These insight into how can borrowing, as well psychological underpinnings responsible effect. Theoretical, managerial, welfare implications findings discussed.