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

Jinkook Lee and Jeanne M. Hogarth
Journal of Public Policy & Marketing
Vol. 18, No. 1, Pricing and Public Policy (Spring, 1999), pp. 66-76
Stable URL: http://www.jstor.org/stable/30000509
Page Count: 11
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The Price of Money: Consumers' Understanding of APRs and Contract Interest Rates
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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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