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Determinants of the knowledge of the total cost of consumer loans

ISI: Determinants of the knowledge of the total cost of consumer loans

PABLO FARÍAS N.

2018 - Forthcoming - Academia Revista Latinoamericana de Administracion

Abstract

Purpose: This paper examines the influence of consumer-related and bank-related characteristics on the knowledge of the total cost of consumer loans paid by consumers and tests the hypothesized relationships between them.   Design/methodology/approach: In order to identify the proportion of consumers who do not know the total cost of consumer loans and reasons for it in the Chilean consumer loans industry, an empirical study using a survey administered through personal in-home interviews was carried out.   Findings: Results show that knowledge of a consumer loans total cost is positively associated with product satisfaction as well as recent and infrequent purchases. This study also shows that a big market segment, comprising 37.2% of the probability sample, represents vulnerable consumers with high self-reported knowledge but low actual knowledge of the total costs of consumer loans. This study shows that this market segment has a higher use of the price-quality cue and a higher purchase frequency of consumer loans.   Originality/value: The present study contributes to the existing literature in the following ways. First, while previous research measured only self-reported knowledge for financial services, the present study examines actual knowledge of the total cost of consumer loans. Second, while previous research for financial services only examined the effects of the use of the price-quality cue and price advertising exposure, the present study also examines eleven other determinants, which are relevant for managers, regulators and researchers.

Keywords

Price knowledge; financial services; consumer-related characteristics; bank-related characteristics; consumer loans.

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