Incentives for Loan Repayments: Evidence from a Randomized Field Study
Incentives for Loan Repayments: Evidence from a Randomized Field Study
7 July, 2020 •Similar Articles
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This field experiment tests an innovative approach for helping automobile loan borrowers make their loan payments on time. Borrowers were randomly assigned to a loan with an interest rate reduction after three on-time payments; borrowers assigned to this loan show fewer late payments compared to a control group. While the financial incentive of the interest rate reduction was small, the offer of a rate reduction appears to result in borrowers attending to due dates. This result illustrates that lenders can use simple mechanisms to encourage more positive repayment patterns among borrowers with a history of late payments.