Consumers' Use of High-Price Credit Products: Do They Know What They Are Doing?

Abstract

A variety of consumer credit products have particular notoriety because of their high prices. The products include some small personal loans, pawnbroker loans, payday loans, automobile title loans, and refund anticipation loans. Critics of these credit products see little or no benefit to using high-price credit, assert that high-price credit products have great potential to harm consumers, and contend that consumers using such products often are uninformed or have been misled. This paper examines available evidence on consumers' use of high-price credit within the context of their credit situation and decision process. The findings indicate that users of high-cost credit generally fall into groups that economic theory predicts might benefit from use of such credit and suggest that decision processes for high-price credit products typically show signs of deliberation but usually do not include extensive problem solving. As such, decision processes for high-price credit products do not appear to be much different from decision processes for mainstream credit products.

Keywords: high-price consumer credit, consumer credit decisions