From the British Psychological Society (BPS) press release via AlphaGalileo:
Providing information about higher repayments in a credit card statement, in addition to or instead of the usual minimum repayment level, encourages customers to choose higher repayments over a shorter time.
This is one of the findings of Research Associate Sandie McHugh and Professor Rob Ranyard from the University of Bolton who present their findings at the British Psychological Society (BPS) Annual Conference today, Thursday 11 April 2013, in Harrogate.
Previous studies have shown that when given information about minimum repayment people tend to choose lower repayments than when minimum repayment information is absent. This preliminary study focused on how customers would react to information on the consequences for credit cost and repayment time of repaying higher amounts.
Three credit card statements were presented to 342 participants who were randomly allocated to one of four different versions of a paper questionnaire. One version had no repayment information, a second had minimum repayment information only, a third had a higher repayment level and the fourth contained information on the minimum and the higher repayment level. Each participant was asked how much they would pay that month and if they had any concerns about future payments.
The results showed that participants with information on minimum repayments tended to pay less than those without this information. In contrast the presence of the higher repayment level on its own or with the minimum repayment encouraged a choice for higher repayments.
Sandie McHugh explained: “Especially in times of economic hardship customers should be able to make informed choices about their repayments as sometimes paying more over a short length of time can reduce their overall total. We believe that credit card companies should provide information on range of repayment levels to help borrowers make the right decision for them. Further research would be useful to evaluate the effect of providing such information on credit card repayment decisions.”