Article1999

The Price of Money: Consumers’ Understanding of APRs and Contract Interest Rates

81 citations0/0 files storedJournal of Public Policy & Marketing

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Financial Literacy, Pension, Retirement Analysis Banking stability, regulation, efficiency Financial Literacy and Behavior

Abstract

Both the contract interest rate and the annual percentage rate indicate the price of a loan. Consumer's understanding of these two measures of the price of closed-end consumer loans was examined using the 1997 University of Michigan Survey of Consumers. Among the mortgage borrowers, at least 40% of respondents failed to understand the relationship between these two price measures; education, quantity and quality of information search, and region were found to influence their understanding. The authors draw implications for improving information disclosure in consumer credit markets.

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References

1961The Economics of Information 1987Dimensions of Consumer Expertise 1985The Effects of Product Class Knowledge on Information Search Behavior 1980Effects of Prior Knowledge and Experience and Phase of the Choice Process on Consumer Decision Processes: A Protocol Analysis 1985Consumer Knowledge: Effects on Evaluation Strategies Mediating Consumer Judgments 1984Product Familiarity and Learning New Information 1983A Model of Consumer Information Search Behavior for New Automobiles 1987Effects of Quality and Quantity of Information on Decision Effectiveness

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