attitudes toward sales finance companies and installment credit

V
A T T I T U D E S TOWARD SALES FINANCE
COMPANIES
AND INSTALLMENT C R E D I T
Report
Issued
by the
SURVEY RESEARCH CENTER
I N S T I T U T E FOR SOCIAL RESEARCH
T H E UNIVERSITY O F MICHIGAN
Based on a Nationwide Sample Interview Survey
27
S5
ANN ARBOR, MICHIGAN
JANUARY 1960
a — )
Introduction
The Survey Research Center hereby p r e s e n t s i t s r e p o r t on a
n a t i o n w i d e sample i n t e r v i e w survey, conducted
1959,
toward the end o f the year
i n which people's a t t i t u d e s toward d i f f e r e n t ways o f f i n a n c i n g the
purchase o f a u t o m o b i l e s have been s t u d i e d .
q u i r y can be s t a t e d as f o l l o w s :
The
starting point of this i n -
D u r i n g t h e p a s t few years commercial banks
have e n t e r e d t h e business o f consumer i n s t a l l m e n t c r e d i t and
through vigorous merchandising
succeeded
campaigns t o seize a f a i r share o f t h a t b u s i -
ness f r o m sales f i n a n c e companies.
The
l a t t e r d i d not attempt to contact
the a u t o m o b i l e buyers d i r e c t l y and were s a t i s f i e d t o m a i n t a i n t h e i r
tradi-
t i o n a l connections w i t h automobile d e a l e r s .
The
survey shows t h a t banks a r e p o p u l a r and h i g h l y
regarded,
w h i l e s a l e s f i n a n c e companies are unknown t o broad groups o f people
and
are o f t e n confused w i t h l o a n companies, t h e p r i m a r y business o f which i s
t o g r a n t s m a l l cash l o a n s .
A l t h o u g h adverse o p i n i o n s about f i n a n c e com11
p a n i e s " are f r e q u e n t l y v o i c e d , i t does n o t seem t h a t many people have
s t r o n g l y h e l d u n f a v o r a b l e c o n v i c t i o n s . Needless t o say, i t i s e a s i e r to
f i g h t l a c k o f i n f o r m a t i o n than t o c o u n t e r a c t d e r o g a t o r y o p i n i o n s .
The
s t u d y was
d i r e c t e d by George Ratona, w i t h t h e a s s i s t a n c e of
Margaret Wood.
i
Table o f Contents
Chapters
Page
1.
Finance Companies Versus Banks
2.
B o r r o w i n g t h r o u g h t h e Car D e a l e r :
3.
Car Insurance and I n s t a l l m e n t Buying
16
4.
Differences
Among Finance Companies
20
5.
A t t i t u d e s Toward I n s t a l l m e n t C r e d i t
27
6.
The Cost o f I n s t a l l m e n t C r e d i t
39
Appendix:
v
Methodology
1
Sources o f C r e d i t . .
12
43
Supplementary Tables
45
ii
1.
Finance Companies Versus Banks
What do people t h i n k a r e t h e b e s t ways t o f i n a n c e t h e i r
o f automobiles?
purchases
Do people i n v a r i o u s groups p r e f e r t o o b t a i n c r e d i t from
banks so as t o pay the d e a l e r c a s h , o r do they p r e f e r t o e n t r u s t the c a r
d e a l e r w i t h t h e task o f a r r a n g i n g f o r time payments?
B e f o r e these q u e s t i o n s
can be r a i s e d , i t i s necessary t o f i n d o u t what people know about d i f f e r e n t
potential
lenders.
Table 1 shows t h a t p u b l i c i n f o r m a t i o n about t h e sources o f i n s t a l l -
ment c r e d i t i s widespread and s u b s t a n t i a l l y c o r r e c t .
When asked, What p l a c e s
,f
can one go t o arrange f o r f i n a n c i n g a c a r ? " 62 p e r c e n t o f a l l people and a
1
somewhat h i g h e r p r o p o r t i o n o f upper income people m e n t i o n banks as w e l l as
f i n a n c e companies.
The r e m a i n i n g people f a l l i n t o two groups.
I
\
One o f these
groups, 14 p e r c e n t o f a l l , knows n e i t h e r o f banks o r f i n a n c e companies;
t h i s group c o n s i s t s m o s t l y o f low-income
fore o f l i t t l e i n t e r e s t .
people o r o l d e r people and i s t h e r e -
The o t h e r group, a l t o g e t h e r 24 p e r c e n t , mentions
ft
c e r t a i n sources o f c r e d i t o n l y and i s o f g r e a t e r i n t e r e s t even though abs t a i n i n g f r o m m e n t i o n i n g a source may be a v e r b a l l a p s e r a t h e r t h a n an
i n d i c a t i o n o f lack o f f a m i l i a r i t y .
I t appears t h a t 18 p e r c e n t o f a l l
people (and 22 p e r c e n t o f people w i t h o v e r $10,000 income) mentioned banks
b u t n o t f i n a n c e companies, w h i l e 6 p e r c e n t o f a l l
•—
•
(and 3 p e r c e n t o f h i g h -
-t
income) people mentioned f i n a n c e companies .but n q t ^ b a n k s .
Table IB shows t h a t t h e l e v e l o f i n f o r m a t i o n about sources o f
c r e d i t i s g r e a t e r among people who do have i n s t a l l m e n t debt than among those
who do n o t .
Even t h e s i z e o f m o n t h l y payments makes a d i f f e r e n c e .
When t h e
m o n t h l y payments a r e l a r g e ( o v e r $100) t h e i n f o r m a t i o n i s more complete than
when t h e y a r e s m a l l (under $50).
1-
<tf
fr-* ^
1
-2A f t e r i t was
found out how much o r how
little
survey
respondents
knew about the sources o f c r e d i t t h e y were t o l d :
Mr. Smith and Mr. Jones b o t h needed $1500 t o pay f o r a new c a r .
Mr. Smith went t o a bank b e f o r e he bought the c a r and borrowed
the money; Mr. Jones arranged f o r the time payments w i t h t h e c a r
dealer.
F o l l o w i n g t h i s i n t r o d u c t i o n , respondents
why Mr.
were asked t o e x p l a i n
Smith d i d go t o the bank, t o t e l l what k i n d o f person he i s , t o ex-
press an o p i n i o n about how he was
t r e a t e d by the bank and, f i n a l l y , t o say
what would happen i f he f a i l e d t o make a payment when due.
q u e s t i o n s were asked r e g a r d i n g Mr. Jones, who
w i t h the car dealer.
The
same f o u r
f o r the time payments
two s e t s o f answers t o the f o u r p a r a l l e l
are p r e s e n t e d i n Table 2.
The
arranged
The
questions
I t appears t h a t banks are overwhelmingly
i n t e r e s t they charge i s b e l i e v e d t o be l o w e r .
People who
are c a l l e d i n t e l l i g e n t , info-gmed-r-or-j&f h i g h s t a t u s .
popular.
f r e q u e n t them
Banks are thought t o
t r e a t t h e i r customers w e l l and t o g i v e them easy accommodation i n case o f
need.
On the o t h e r hand, people who
arrange f o r time payments t h r o u g h t h e
c a r d e a l e r are f r e q u e n t l y c h a r a c t e r i z e d i n l e s s complimentary
ways.
The
d i f f e r e n c e s between the two s e t s o f answers are s m a l l e s t i n the t h i r d category (Table 2C):
well.
Car d e a l e r s are l i k e w i s e t h o u g h t t o t r e a t t h e i r customers
But o n l y a few o f t h e customers o f c a r d e a l e r s a r e c a l l e d
o r i n f o r m e d , and many more s t u p i d , p o o r l y I n f o r m e d , o r unwise.
intelligent
Mr.
Jones,
who went t o a c a r d e a l e r , i s f r e q u e n t l y c a l l e d a low s t a t u s o r low-income
person and,
f i r s t o f a l l , an i m p a t i e n t o r i m p u l s i v e person who
does n o t p l a n
ahead.
I t should be s t r e s s e d t h a t these d e s c r i p t i o n s are spontaneous ones,
g i v e n by t h e respondents
t o l d was
w i t h o u t any p r o m p t i n g .
the simple q u e s t i o n :
A l l t h e respondents
What k i n d o f a person was Mr. Jones who made
arrangements w i t h the c a r d e a l e r ?
As t h e t a b l e shows, 27 per c e n t o f the
sample d i d n o t f o l l o w t h e s p i r i t o f t h e q u e s t i o n i n g , shrugged t h e i r
o r s a i d they d i d n ' t know.
were
shoulders,
Whatever the o t h e r people s a i d , I n t e r v i e w e r s
attempted
t o w r i t e down as c l o s e l y v e r b a t i m as p o s s i b l e .
then grouped i n t o c a t e g o r i e s i n the c e n t r a l o f f i c e .
Table 2B,
i t was
The
answers were
As can be seen from
p o s s i b l e t o group most answers i n a few c a t e g o r i e s .
Most r e v e a l i n g a r e the reasons respondents a t t r i b u t e t o Mr.
f o r h i s g o i n g t o the c a r d e a l e r r a t h e r t h a n t o a bank.
reasons are connected w i t h i n a b i l i t y t o go t o a bank:
Jones
S e v e r a l o f these
Some 10 per cent
say
so f l a t l y , w h i l e 17 per c e n t r e f e r t o l a c k o f c r e d i t o r l a c k o f s e c u r i t y on
the p a r t o f the would-be b o r r o w e r .
A f u r t h e r 10 per c e n t a t t r i b u t e t o Mr.
Jones a l a c k o f knowledge about advantages o f f i n a n c i n g through a bank.
There a r e , o f c o u r s e , respondents who m e n t i o n p o s i t i v e f a c t o r s w h i c h make
borrowers
go t o the car d e a l e r s .
t h i s way,
are q u i c k e r , are concluded
pressed
C r e d i t arrangements are more convenient
w i t h l e s s r e d t a p e - - t h i s i s the ex-
o p i n i o n of o n e - f i f t h o f people.
That i t i s e a s i e r t o get a loan o r
t h a t c r e d i t standards a r e lower a t car d e a l e r s I s the spontaneous e x p l a n a t i o n
o f 6 per c e n t .
An a d d i t i o n a l 5 per c e n t say t h a t one makes s m a l l e r payments
o r has more time t o repay the c r e d i t i f one arranges
f o r c r e d i t w i t h the c a r
dealers.
Somewhat s u r p r i s i n g l y , the o v e r w h e l m i n g l y
f a v o r a b l e o p i n i o n about j
banks extends even t o the a c t i o n taken by the c r e d i t o r i f a borrower
make a payment.
I t i s the o p i n i o n o f 15 per c e n t o f people t h a t i n such a
case banks take s p e c i f i c d r a s t i c a c t i o n ( r e p o s s e s s i o n o f the c a r , law
and the l i k e ) .
cannot
suit,
But 43 per c e n t t h i n k t h a t the l e n d e r w i t h whom the car
d e a l e r makes the arrangements would take d r a s t i c a c t i o n .
S i m i l a r l y , the
o p i n i o n t h a t the l e n d e r would make an easy accommodation i s much more f r e q u e n t l y a t t r i b u t e d t o banks than t o o t h e r c r e d i t o r s .
When the v a r i o u s o p i n i o n s about banks and o t h e r sources o f autom o b i l e c r e d i t are s t u d i e d i n d i f f e r e n t p o p u l a t i o n groups the b a s i c p i c t u r e
as presented above does n o t change.
For i n s t a n c e , r e g a r d i n g the a c t i o n i n
-4case o f d e f a u l t , i t i s t r u e t h a t fewer Negro than w h i t e respondents b e l i e v e
l n easy accommodation, b u t the d i f f e r e n c e between banks and o t h e r sources o f
c r e d i t remain p r a c t i c a l l y unchanged.
When the sample i s broken by urban and
r u r a l r e s i d e n c e , no d i f f e r e n c e s appear.
E x t e n t o f e d u c a t i o n , on the o t h e r
hand, makes f o r some d i f f e r e n c e s , m a i n l y l n the o p i n i o n about banks.
h i g h e r the e d u c a t i o n , the more f a v o r a b l y are banks Judged.
The
The
same i s t r u e
o f upper income f a m i l i e s as shown i n two supplementary t a b l e s .
Comparison between banks and o t h e r l e n d e r s has been c a r r i e d out by
the Survey Research Center i n a r e l a t e d area some time ago.
Small p e r s o n a l
loans r a t h e r than f i n a n c i n g a u t o m o b i l e purchases were s t u d i e d a t t h a t t i m e ,
and t h e q u e s t i o n was
asked from a s m a l l sample o f respondents why Mr.
Smith
went t o a bank and why Mr. Jones went t o a l o a n company i n o r d e r t o borrow
a few hundred d o l l a r s .
The
answers r e c e i v e d t o t h a t p r e v i o u s i n q u i r y were
q u i t e s i m i l a r t o the more r e c e n t one.
I t t h e r e f o r e appears d o u b t f u l t h a t we
are c o n f r o n t e d here w i t h adverse o p i n i o n s toward p e r s o n a l l o a n companies,
s a l e s f i n a n c e companies, o r c a r d e a l e r s .
are i n s t i t u t i o n s h e l d i n h i g h esteem.
I t i s much more probable t h a t banks
E a r l i e r s t u d i e s r e v e a l e d t h a t the
s t e r e o t y p e , a l l e g e d l y w i d e l y p r e v a l e n t i n the p a s t , t h a t banks are
i n s t i t u t i o n s w h i c h may
stuffy
be e n t e r e d o n l y w i t h h a t i n hand, has l o s t credence.
What remained from t h a t n o t i o n i s t h a t banks are h i g h - c l a s s
p a t r o n i z e d by upper c l a s s people o r i n f o r m e d people.
institutions
T h e r e f o r e , the
behavior
o f banks toward customers i s thought t o be most accommodating and those
are i n f o r m e d o r those who
can a f f o r d i t should go t o banks.
T h i s i s , however, n o t the whole s t o r y .
i n Table 2A w h i c h we have n o t y e t d i s c u s s e d
d i d Mr.
who
There i s another
in detail.
To the q u e s t i o n ,
Smith go t o a bank, 52 per c e n t o f a l l people s a i d
t h a t t h e i n t e r e s t r a t e charged by banks i s lower.
finding
spontaneously
Because o f the
o f o p i n i o n s about l e v e l o f i n t e r e s t r a t e s , t h i s problem was
why
importance
raised i n a
-5s p e c i f i c q u e s t i o n addressed t o r e s p o n d e n t s , on w h i c h we r e p o r t i n Table 3.
I t appears t h a t 56 per c e n t o f a l l people say when q u e s t i o n e d d i r e c t l y
the
that
c o s t o f f i n a n c i n g i s h i g h e r i f one a r r a n g e s f o r c r e d i t w i t h a c a r d e a l e r
r a t h e r t h a n w i t h a bank.
much h i g h e r .
Most o f these people say even t h a t the c o s t i s
There a r e o n l y a few p e o p l e who b e l i e v e t h a t banks charge more,
somewhat more who
say t h a t t h e r e i s no d i f f e r e n c e and, f i n a l l y , t h e r e are
many p e o p l e e s p e c i a l l y among lower income groups who do n o t know whether
there i s a d i f f e r e n c e .
I t may be t h o u g h t t h a t a r r a n g i n g f o r i n s t a l l m e n t c r e d i t through a
car
d e a l e r has c l e a r - c u t advantages i n terms o f convenience (one arranges
f o r e v e r y t h i n g a t the one p l a c e where one goes anyhow t o purchase a c a r ) and
from t h e p o i n t o f v i e w o f e s t a b l i s h i n g c l o s e r e l a t i o n s w i t h t h e agency w i t h
w h i c h most buyers remain i n c l o s e touch f o r s e r v i c i n g t h e i r new c a r .
As i s
shown i n Table 2A, o n l y a m i n o r i t y (20 p e r c e n t ) o f people r e c o g n i z e the
f i r s t advantage.
I t appears f r o m Table 4 t h a t o n l y a s m a l l m i n o r i t y (10
per c e n t ) agree t h a t t h e r e i s an advantage i n the second r e s p e c t .
When
s e r v i c i n g o f the c a r i s d i s c u s s e d , o n e - f o u r t h o f the people have no o p i n i o n
and over 60 per c e n t say f l a t l y t h a t arrangements f o r i n s t a l l m e n t c r e d i t
make no d i f f e r e n c e i n s e r v i c i n g .
As a f i n a l q u e s t i o n i n s t u d y i n g the d i f f e r e n c e s between arrangements
t h r o u g h banks v e r s u s d e a l e r s , respondents were asked whether t h e y thought i t
makes a d i f f e r e n c e t o t h e d e a l e r whether a c a r buyer arranges f o r t h e c r e d i t
w i t h him o r w i t h a bank.
people t h i n k so.
I t i s shown i n Table 5 t h a t about o n e - t h i r d o f a l l
I n e x p l a i n i n g t h e i r o p i n i o n , many^respondents say t h a t the
d e a l e r makes money ( o r r e c e i v e s a k i c k b a c k ) i f he concludes the c r e d i t a r rangements.
But even respondents who express t h i s o p i n i o n a r e found t o p r e f e r
b o r r o w i n g f r o m banks.
I t appears then t h a t few a u t o m o b i l e buyers b e l i e v e i n
d o i n g the car dealer a favor.
Economic Behavior Program
-6-
.Survey Research Center
Table 1
I n f o r m a t i o n about Where One Can Arrange F i n a n c i n g o f Car
A.
By Income
Income
$5000
-7499
All
Under
$3000
$3000
-4999
15%
16%
15%
13%
14%
14%
F i n a n c e company alone
6
8
6
6
3
3
Bank and c r e d i t u n i o n
3
*
3
3
2
8
57
41
61
66
67
64
Bank, c r e d i t u n i o n ,
and f i n a n c e company
5
1
5
8
10
5
Other
3
6
3
2
1
1
Don't know; n o t
ascertained
11
28
7
2
3
5_
Total
100%
100%
Type o f Lender,
Spontaneously Mentioned
Bank alone
Bank and f i n a n c e company
B.
100%
100%
$7500
-9999
$10,000
and o v e r
100%
100%
By Debt
Size o f M o n t h l y Payments
None
Under $50
$50 - 99
$100 or o v e r
17%
16%
8%
9%
F i n a n c e company alone
6
6
5
7
Bank and c r e d i t u n i o n
3
2
4
1
52
59
70
72
Bank, c r e d i t u n i o n ,
and f i n a n c e company
4
3
9
7
Other
4
3
2
3
14
11
2
1_
100%
100%
Bank alone
Bank and f i n a n c e company
Don't know; n o t a s c e r t a i n e d
Total
100%
* Less t h a n o n e - h a l f o f one per c e n t .
The q u e s t i o n was: "About t h e f i n a n c i n g o f t h e purchase o f a c a r can one go t o a r r a n g e f o r f i n a n c i n g a c a r ? "
100%
what p l a c e s
Survey Research Center
-7-
Economic Behavior Program
Table 2
C r e d i t Arrangements
A.
t h r o u g h Car Dealer o r Bank
Why One o r t h e Other
Why Mr. Jones made arrangements w i t h t h e c a rd e a l e r
Why Mr. Smith went t o a bank
More c o n v e n i e n t ; q u i c k e r ; l e s s r e d tape
C r e d i t i s n ' t good; no s e c u r i t y
Ignorance o f disadvantages
Can't go t o a bank
C r e d i t standards a r e l o w e r ; e a s i e r t o g e t a loan
S m a l l e r payments; more t i m e t o payback
Advertising, publicity
Other
Don't know; n o t a s c e r t a i n e d
I n t e r e s t i s lower
Had t i e s t o banks
Banks a r e sounder, more r e s p e c t a b l e ,
more r e l i a b l e
C o l l a t e r a l a v a i l a b l e , good
c r e d i t standing
52%
10
Other
Don't know; n o t a s c e r t a i n e d
10
16
Total
20%
17
10
10
6
5
1
12
19
100%
B.
Total
7
5
100%
C h a r a c t e r i z a t i o n o f Borrower
What k i n d o f a person i s Mr. Jones who
made arrangements w i t h t h e c a r d e a l e r ?
What k i n d o f a person i s Mr. Smith who went t o a bank?
I n t e l l i g e n t , informed
5%
H i g h s t a t u s , r i c h , w e l l educated, i m p o r t a n t
*
Respectable; honest, r e l i a b l e man w i t h steady j o b 10
An average guy
10
I m p a t i e n t , i m p u l s i v e , e x t r a v a g a n t , does n o t p l a n 17
S t u p i d , p o o r l y i n f o r m e d , unwise
11
Low s t a t u s ; l o w income, b a d l y educated w o r k i n g man 11
Other, somebody l i k e me
9
Don't know; n o t a s c e r t a i n e d
27
I n t e l l i g e n t , informed
47%
H i g h s t a t u s , r i c h , w e l l educated, i m p o r t a n t
5
Respectable; honest, r e l i a b l e man w i t h steady j o b
8
An average guy
3
R e s t r a i n e d , plans ahead, does n o t s p l u r g e
13
S t u p i d , p o o r l y i n f o r m e d , unwise
1
Low s t a t u s ; low income, b a d l y educated w o r k i n g man 1
Other, somebody l i k e me
3
Don't know; n o t a s c e r t a i n e d
19
Total
100%
Total
100%
Survey Research Center
C.
How was Mr. Jones t r e a t e d
TABLE 2 CONTINUED
-8How Borrower Was T r e a t e d
How was Mr. Smith t r e a t e d
by t h e c a r d e a l e r ?
Treated w e l l , courteously
T r e a t e d w e l l , i f h i s c r e d i t was good
Treated w e l l , w i t h other q u a l i f i c a t i o n s
I n a b u s i n e s s l i k e manner
Delay, checked over
Fairly; just a l l right
Badly, n o t w e l l
Depends on t h e d e a l e r
No comment
49%
5
8
1
*
18
3
1
1
14
Don't know; n o t a s c e r t a i n e d
Treated w e l l , courteously
T r e a t e d w e l l , i f h i s c r e d i t was good
Treated w e l l , w i t h other q u a l i f i c a t i o n s
I n a b u s i n e s s l i k e manner
Delay, checked over
Fairly, just a l l right
Not t o o w e l l , banks a r e c o l d , unpleasant
Depends on t h e bank
No comment
D.
100%
I n Case o f D e f a u l t
I f Mr. Smith who went t o a bank cannot
make a payment, what w i l l happen?
S p e c i f i c d r a s t i c a c t i o n ; r e p o s s e s s i o n , law s u i t
They would t a k e steps t o be sure t h e y c o l l e c t e d
A c t i o n only a f t e r delay
They would be tougher t h a n t h e bank
An easy accommodation
N o t h i n g w i l l happen
Depends on t h e c a r d e a l e r
Don't know; n o t a s c e r t a i n e d
S p e c i f i c d r a s t i c a c t i o n ; r e p o s s e s s i o n , law s u i t
They would t a k e steps t o be sure they c o l l e c t e d
A c t i o n o n l y a f t e r delay
They would be tougher t h a n t h e f i n a n c e company
An easy accommodation
N o t h i n g w i l l happen
Depends on t h e bank
Don't know; n o t a s c e r t a i n e d
Less t h a n o n e - h a l f o f one p e r c e n t .
12
Total
I f Mr. Jones who made arrangements w i t h t h e c a r
d e a l e r cannot make a payment, what w i l l happen?
Total
58%
9
5
Don't know; n o t a s c e r t a i n e d
100%
Total
by t h e bank?
100%
Total
100%
Survey Research Center
Economic Behavior Program
-9-
Table 3
D i f f e r e n c e i n Cost o f F i n a n c i n g t h r o u g h Car Dealer o r Bank
A.
By Income
D i f f e r e n c e i n Cost
All
Under
$3000
$3000
-4999
Car d e a l e r i s h i g h e r
56%
37%
63%
63%
72%
65%
(33)
(19)
(37)
(38)
(51)
(36)
(17)
(6)
(13)
(5)
(18)
(8)
(20)
(5)
(16)
(5)
(22)
(7)
Much h i g h e r
D i f f e r e n c e does n o t
amount t o much
Don' t know by how much
Income
$7500
$5000
-9999
-7499
$10,000
and over
Bank i s h i g h e r
3
4
4
2
3
3
There i s a d i f f e r e n c e ,
d o n ' t know w h i c h i s h i g h e r
2
1
2
2
*
2
No d i f f e r e n c e
11
12
10
12
10
12
D o n 1 know
25
40
20
19
14
17
3
6
1
2
1_
100%
100%
100%
100%
1
Not a s c e r t a i n e d
Total
100%
1
100%
B. _By E d u c a t i o n
Grade
s c h o o l ; none
Some h i g h
school
Completed
h i g h school
Some
college
College
degree
44%
61%
69%
68%
66%
Bank i s h i g h e r
3
2
2
3
4
There i s a d i f f e r e n c e
d o n ' t know w h i c h i s h i g h e r
2
1
1
2
No d i f f e r e n c e
13
8
13
10
12
Don't know
34
26
15
17
16
Not a s c e r t a i n e d
4
2
1_
1
*
Total
100% q
100%
100%
Car d e a l e r i s h i g h e r
100%
100%
* Less than o n e - h a l f o f one per c e n t .
The q u e s t i o n s were: " I s t h e r e a d i f f e r e n c e i n c o s t i f one makes arrangements f o r
f i n a n c i n g w i t h a c a r d e a l e r o r w i t h a bank? Which one i s
h i g h e r ? Would you say t h a t i t i s a l a r g e d i f f e r e n c e or t h a t
i t does n o t amount t o much?"
Survey Researeh Center
Economlc Behavior Program
-10-
Table 4
D i f f e r e n c e i n S e r v i c e Depending on Arrangements f o r F i n a n c i n g
D i f f e r e n c e i n How
t h e Car I s S e r v i c e d
All
B e t t e r s e r v i c e d i f bought on
t i m e from t h e d e a l e r
11%
10%
10%
14%
13%
12%
(4)
(3)
(5)
(3)
(4)
Much b e t t e r
$3000
-4999
Income
$5000
$7500
-7499
-9999
Under
$3000
$10,000
and o v e r
D i f f e r e n c e does n o t
amount t o much
(6)
(4)
(6)
(7)
(8)
(8)
Don't know by how much
(1)
(2)
(1)
(2)
(2)
(*)
2
2
1
2
1
2
61
41
66
69
71
76
21
41
18
11
10
9
2
1
1
B e t t e r s e r v i c e d by t h e d e a l e r
i f f i n a n c e d t h r o u g h a bank
There i s a d i f f e r e n c e , don't
know w h i c h i s b e t t e r
No
difference
Don't know
Not ascertained
Total
3_
100%
5
100%
2_
100%
100%
100%
100%
* Less than o n e - h a l f o f one p e r c e n t
The q u e s t i o n s were
" I f one makes arrangements f o r f i n a n c i n g w i t h a c a r d e a l e r o r
w i t h a bank, i s t h e r e any d i f f e r e n c e I n how t h e c a r i s serv i c e d by t h e d e a l e r ? Would you say t h a t i t i s a l a r g e
d i f f e r e n c e o r t h a t i t does n o t amount t o much?"
Survey Research Center
Economic Behavior Program
-11-
Table 5
O p i n i o n s about Whether I t Makes a D i f f e r e n c e
t o t h e D e a l e r How F i n a n c i n g I s Arranged
Opinion
All
There i s a d i f f e r e n c e
34%
28%
31%
40%
46%
35%
There i s no d i f f e r e n c e
47
36
54
51
46
54.
Don't know
15
29
12
8
6
8
Not a s c e r t a i n e d
4
7
3
2
3
Total
100%
The q u e s t i o n was:
100%
$3000
-4999
Income
$5000
-7499
Under
$3000
100%
100%
$7500
-9999
100%
$10,000
and over
100%
"Do you t h i n k i t makes a d i f f e r e n c e t o t h e d e a l e r whether a
car buyer arranges f o r t h e c r e d i t w i t h him o r w i t h a bank?
2.
B o r r o w i n g t h r o u g h t h e Car D e a l e r :
Sources o f C r e d i t
A second s e c t i o n i n t h e q u e s t i o n n a i r e d e a l t w i t h arrangements made
w i t h d e a l e r s f o r t h e f i n a n c i n g o f t h e purchase o f a c a r .
I n t h i s respect,
a g a i n , f i r s t people's l e v e l o f i n f o r m a t i o n had t o be d e t e r m i n e d .
know who a c t u a l l y lends t h e money when a c a r buyer makes c r e d i t
through a d e a l e r ?
Do people
arrangements
As shown i n Table 6 i n f o r m a t i o n i s widespread and sub-
stantially correct.
To be s u r e , even among high-income people some do n o t
know t h e answer t o o u r q u e s t i o n and some more b e l i e v e t h a t c a r d e a l e r s o r c a r
m a n u f a c t u r e r s a r e t h e sources o f c r e d i t .
The p r o p o r t i o n o f people who mention
b o t h banks and f i n a n c e companies i s f a i r l y s m a l l ; t h e m a j o r i t y r e f e r s t o one
or the o t h e r .
Finance companies as t h e o n l y source o f c r e d i t a v a i l a b l e t o
c a r d e a l e r s a r e mentioned much more f r e q u e n t l y t h a n banks are mentioned as
the o n l y source.
T h i s i s t r u e n o t o n l y o f a l l income groups b u t a l s o i f people
are d i v i d e d a c c o r d i n g t o t h e s i z e o f t h e i r monthly i n s t a l l m e n t payments
(Table 6 B ) .
One m i g h t imagine t h a t t h e c a r buyer d e a l s w i t h t h e d e a l e r alone
and need n o t be concerned w i t h w h i c h k i n d o f i n s t i t u t i o n t h e d e a l e r makes t h e
c r e d i t arrangements f o r h i m . I t was f o u n d , however, t h a t i n t h e o p i n i o n o f
the m a j o r i t y o f people t h e c a r buyer should be concerned (59 p e r c e n t s a i d s o ) .
Those who s a i d t h a t people should be concerned were asked whether t h e y had a
preference.
The answers shown i n Table 7 i n d i c a t e c l e a r l y t h a t most people
express a d e f i n i t e p r e f e r e n c e f o r t h e d e a l e r s making c r e d i t arrangements w i t h
banks.
Why do people have these p r e f e r e n c e s ?
The g r e a t m a j o r i t y o f those
who s a i d t h a t t h e y would p r e f e r t o have t h e i r d e a l e r a r r a n g e t h e l o a n w i t h
banks s a i d t h a t t h i s i s t h e cheapest way ( l o w e r charges o r lower i n t e r e s t
-12-
-13-
r a t e s were mentioned by 28 per c e n t o f a l l p e o p l e ) .
have a b e t t e r r e p u t a t i o n
(13 per c e n t ) .
A still
Others s a i d t h a t banks
s m a l l e r group s a i d t h a t banks
are more l e n i e n t i f you miss a payment, o r r e f e r r e d t o o t h e r advantages o f
banks.
I n o t h e r words, i n t h i s second a r e a o f i n q u i r y people were a g a i n q u i t e
e x p l i c i t i n e x p r e s s i n g t h e i r f a v o r a b l e a t t i t u d e s toward banks.
Econoraic Behavior Program
-14-
Survey Research Center
Table 6
I n f o r m a t i o n about C r e d i t Sources A v a i l a b l e t o D e a l e r s
A.
By Income
Sources o f C r e d i t
All
Urtder
$3000
$3000
-4999
Banks o n l y
in
14%
18%
19%
18%
20%
F i n a n c e companies o n l y
31
22
31
38
42
31
1
1
1
1
1
1
Two o r t h r e e among t h e 3 above
14
8
18
16
18
17
Car d e a l e r s , c a r m a n u f a c t u r e r s
7
6
7
7
5
10
Banks and c a r d e a l e r s
2
1
2
2
3
3
Finance companies & c a r d e a l e r s
4
3
3
5
3
3
O t h e r source
1
1
1
*
1
1
23
44
19
12
9
14
1007o
100%
100%
100%
100%
100%
C r e d i t unions only
Don't know; n o t a s c e r t a i n e d
Total
B.
Income
$5000
$7500
-7499
-9999
$10,000
and over
By Debt
Size o f M o n t h l y Payments
None
Under $50
$50 - 99
$100 or over
Banks o n l y
18%
15%
18%
17%
F i n a n c e companies o n l y
27
36
35
43
1
1
*
*
Two o r t h r e e among t h e 3 above
13
14
20
16
Car d e a l e r s , c a r m a n u f a c t u r e r s
7
7
6
8
Banks and c a r d e a l e r s
2
2
2
Finance companies & c a r d e a l e r s
4
3
5
4
O t h e r source
1
*
1
*
27
22
13
12
100%
100%
100%
100%
C r e d i t unions only
Don't know; n o t a s c e r t a i n e d
Total
* Less than o n e - h a l f o f one p e r c e n t .
The q u e s t i o n was: "When a buyer makes c r e d i t arrangements t h r o u g h a c a r d e a l e r ,
who a c t u a l l y lends t h e money?
Survey Research Center
-15-
Economlc 6 e h a v i 6 r Progfam
Table 7
Preferences
f o r Sources o f F i n a n c i n g Arranged t h r o u g h Car Dealer
Income
$7500
$5000
-7499
-9999
All
Under
$3000
$3000
-4999
487.
307.
54%
59%
61%
51%
D e f i n i t e l y p r e f e r finance
companies
2
1
3
2
4
3
Have p r e f e r e n c e , n o t c l e a r
f o r which source
6
6
7
5
3
5
One might perhaps be
concerned a l i t t l e
3
2
1
2
2
2
No p r e f e r e n c e
25
26
22
24
26
29
Don't know
11
26
8
6
3
5
9
5
2
1
5
100%
100%
100%
D e f i n i t e l y p r e f e r banks
Not a s c e r t a i n e d
Total
5
1007.
100%
$10,000
and over
100%
The q u e s t i o n s were: "(As you s a i d ) c a r d e a l e r s make arrangements t o f i n a n c e a c a r
w i t h f i n a n c e companies and sometimes w i t h banks; would you
say t h a t t h e c a r buyer should be concerned w i t h whom the
d e a l e r makes t h e arrangement? Do you have a p r e f e r e n c e ? "
3.
Car I n s u r a n c e and I n s t a l l m e n t Buying
I f the a u t o m o b i l e i n s u r a n c e i s handled i n c o n j u n c t i o n w i t h the
arrangement
f o r the f i n a n c i n g o f t h e c a r , an i m p o r t a n t source o f revenue i s
opened up t o s a l e s f i n a n c e companies and c a r d e a l e r s .
i s a c o n v e n i e n t arrangement
A t the same t i m e , t h i s
t o t h e auto p u r c h a s e r , who may handle a l l a r -
rangements i n c o n n e c t i o n w i t h t h e purchase o f h i s c a r a t the o f f i c e o f the
car dealer r a t h e r than a t t h r e e or f o u r separate places.
The f i r s t q u e s t i o n t o be asked i n t h i s area a g a i n concerns
level of information.
We
people's
f i n d i n Table 8 t h a t on the whole people a r e w e l l
informed about t h e f a c t t h a t f i n a n c e companies (and c a r d e a l e r s ) handle car
insurance.
Only among low-income people i s l a c k o f i n f o r m a t i o n f r e q u e n t , and
o n l y r e l a t i v e l y few people m o d i f y t h e i r o p i n i o n by adding t h a t some f i n a n c e
companies handle i n s u r a n c e w h i l e o t h e r s do n o t , o r t h a t f i n a n c e companies
h a n d l e o n l y t h a t f o r m o f a u t o m o b i l e i n s u r a n c e w h i c h serves t o cover t h e b a l ance due.
C u r r e n t a u t o d e b t o r s who n a t u r a l l y a r e r e c e n t a u t o purchasers are
b e t t e r i n f o r m e d t h a n people who have no c a r debt.
F o l l o w i n g t h i s i n q u i r y respondents were asked whether i t makes any
d i f f e r e n c e whether a c a r buyer a r r a n g e s t h e i n s u r a n c e t h r o u g h the c a r d e a l e r
o r by g o i n g d i r e c t l y t o an i n s u r a n c e company.
p o r t i o n o f those who
Among i n f o r m e d people the pro-
s a i d t h a t i t does make a d i f f e r e n c e and o f those
s a i d t h a t i t does n o t make a d i f f e r e n c e was
c e n t as shown i n Table 9 ) .
who
f a i r l y s i m i l a r (37 and 31 per
Yet t h e two p r o p o r t i o n s a r e most a l i k e among
lower income groups ( l e s s than $5000 income).
Most o f those who
say t h a t i t
makes a d i f f e r e n c e b e l i e v e t h a t i t I s more advantageous f o r the c a r buyer t o
arrange f o r t h e i n s u r a n c e by g o i n g d i r e c t l y t o an i n s u r a n c e company.
-16-
-17-
When people who expressed
t h i s o p i n i o n were asked t o t e l l why they
thought so, t h e f o l l o w i n g d i s t r i b u t i o n o f reasons was o b t a i n e d :
B e t t e r t o Arrange Insurance t h r o u g h I n s u r a n c e
Company than t h r o u g h Car Dealer because:
Per Cent o f E n t i r e Sample
I t i s cheaper
9
Know what you a r e g e t t i n g , can arrange
f o r coverage as needed
5
Can
4
s e l e c t i n s u r a n c e company one wants
Can g e t b e t t e r coverage
2
I n a d d i t i o n , o f c o u r s e , t h e r e were many p e o p l e who c o u l d n o t e x p l a i n
o p i n i o n and j u s t r e p o r t e d
their
t h e i r judgment t h a t i t i s b e t t e r t o d e a l w i t h
who a r e i n s u r a n c e s p e c i a l i s t s r a t h e r than w i t h a c a r d e a l e r .
those
Some few r e -
spondents s p e c i f i c a l l y r e f e r r e d t o a d v e r t i s e m e n t s w h i c h , so t h e y s a i d , make
i t c l e a r t h a t i t i s advantageous t o d e a l d i r e c t l y w i t h a u t o m o b i l e
insurance
companies.
The
f a i r l y s m a l l p r o p o r t i o n o f people who thought t h a t i t i s b e t t e r
t o handle t h e c a r i n s u r a n c e t h r o u g h t h e a u t o m o b i l e d e a l e r used v e r y s i m i l a r
arguments.
surance
Three p e r c e n t o f a l l people
from a c a r dealer.
more c o n v e n i e n t .
s a i d t h a t i t i s cheaper t o buy i n -
S l i g h t l y over one p e r c e n t s a i d t h a t t h i s i s
fiurvej? ReseafeH Center
Economic Behavior Progifam
-18Table 8
Knowledge o f whether Car D e a l e r s and Finance Companies Handle Car Insurance
A.
By Income
All
_
Under
$3000
$3000
-4999
Car d e a l e r s and f i n a n c e companies
handle car insurance
56%
36%
61%
66%
71%
68%
Some handle i n s u r a n c e , some don't
4
2
4
6
7
5
They handle o n l y i n s u r a n c e on
c a r s t o cover balance due
2
*
2
1
1
1
Do n o t handle c a r insurance
10
12
12
9
7
5
D o n 1 know
23
43
18
14
10
14
5
7
3_
4
4
7
100%
100%
100%
1
Not a s c e r t a i n e d
Total
B.
Income
$5000
$7500
-7499
-9999
100%
100%
$10,000
and o v e r
100%
By Debt
Size o f M o n t h l y Payments
None
Under $50
$50 - 99
$100 o r o v e r
Car d e a l e r s and f i n a n c e companies
handle car insurance
50%
58%
74%
67%
Some handle i n s u r a n c e , some don't
3
3
10
9
2
3
They handle o n l y i n s u r a n c e on
c a r s t o cover balance due
Do n o t handle c a r i n s u r a n c e
12
9
6
9
Don't know
29
24
6
11
6
4
1
4
Not a s c e r t a i n e d
Total
100%
100%
100%
100%
*Less t h a n o n e - h a l f o f one p e r c e n t .
The q u e s t i o n was:
"As you p r o b a b l y know, c a r s bought on t h e i n s t a l l m e n t p l a n must be
i n s u r e d . Do you happen t o know whether t h e c a r d e a l e r s and
f i n a n c e companies handle t h e insurance o f c a r s o r does t h e buyer
have t o go d i r e c t l y t o an i n s u r a n c e company?"
Survey Research Center
Economic Behavior Program
-19-
Table 9
Preference f o r A r r a n g i n g Automobile Insurance
t h r o u g h Car Dealer o r Insurance Company
$10,000
and over
All
$3000
-4999
37%
26%
34%
48%
44%
46%
(30)
(19)
(28)
(40)
(36)
(36)
(6)
(4)
(6)
(7)
(5)
(1)
(2)
(2)
(1)
(5)
23
37
31
40
33
44
26
19
16
19
Yes, t h e r e i s a d i f f e r e n c e
B e t t e r t h r o u g h an
i n s u r a n c e company
Income
$5000
$7500
-7499
-9999
Under
$3000
B e t t e r through the car dealer
(and/or f i n a n c e company)
(5)
Not c l e a r w h i c h i s b e t t e r
(2)
No d i f f e r e n c e
31
Don't know
28
Not a s c e r t a i n e d
Total
4
100%
7
100%
3_
100%
2_
*
100%
100%
2_
100%
* Less than o n e - h a l f o f one p e r c e n t .
The q u e s t i o n was:
"Does i t make any d i f f e r e n c e whether a c a r buyer arranges the i n surance t h r o u g h t h e c a r d e a l e r o r t h r o u g h an insurance company?
Which would you say i s b e t t e r ? "
4.
D i f f e r e n c e s Among Finance Companies
What do the American people know o f the sales f i n a n c e companies
t h r o u g h w h i c h a s u b s t a n t i a l p r o p o r t i o n o f c a r buyers f i n a n c e t h e i r purchases?
Do
they t h i n k t h a t the f i n a n c e companies a r e a l l a l i k e o r t h a t they
f r o m each o t h e r ?
the people.
The
differ
As can be seen I n T a b l e 10 b o t h o p i n i o n s are p r e s e n t among
o p i n i o n t h a t t h e r e are no d i f f e r e n c e s among f i n a n c e companies
i s much more widespread than the o p i n i o n t h a t t h e r e are d i f f e r e n c e s .
i s e s p e c i a l l y t r u e among low-income p e o p l e and among people who
n o t make any
a t present
do
i n s t a l l m e n t payments on t h e i r c a r .
When the 31 per c e n t o f a l l p e o p l e who
t h i n k t h a t t h e r e are
ences among f i n a n c e companies were asked t o t e l l how
f r o m one
This
another,
differ-
these companies d i f f e r
the f o l l o w i n g answers were o b t a i n e d :
D i f f e r e n c e s Among Finance Companies
Per Cent o f E n t i r e Sample
C a r r y i n g charges d i f f e r
13
D i f f e r e n c e s i n r e p u t a t i o n ; some
are more r e p u t a b l e than o t h e r s
6
Treatment o f c l i e n t s d i f f e r s
5
D i f f e r e n c e s i n s i z e o f down-payment
or i n l e n g t h o f c r e d i t
1
I n a d d i t i o n , c l o s e t o o n e - t h i r d o f the group c o u l d n o t e x p l a i n
f i n a n c e companies d i f f e r from one
how
another.
A r e a d i n g o f the i n t e r v i e w s r e v e a l s t h a t i n the minds o f most people
the d i f f e r e n c e s do n o t seem s u b s t a n t i a l . Among people w i t h c o l l e g e
education
and h i g h income, i t i s q u i t e u s u a l t o f i n d an acknowledgment o f the
existence
o f d i f f e r e n c e s about w h i c h one q u e r i e s ; d e n y i n g d i f f e r e n c e s may
of information.
-20-
imply lack
-21-
Survey respondents were asked whether they had
heard o f any f i n a n c e
companies, and those who r e p l i e d i n t h e a f f i r m a t i v e were asked t o mention
the names o f those companies t h e y had h e a r d o f .
The r e s u l t o f t h i s
inquiry
as p r e s e n t e d i n Table 11 i n d i c a t e s c l e a r l y t h a t f i n a n c e companies a r e n o t
w e l l known.
A l t h o u g h 77 p e r c e n t o f t h e sample s a i d t h a t t h e y have heard o f
f i n a n c e companies,
13 p e r c e n t c o u l d n o t r e c a l l any names.
An a d d i t i o n a l
v e r y l a r g e group, namely 30 p e r c e n t o f a l l , mentioned names o f f i r m s which
were p r i m a r i l y engaged i n businesses o t h e r than a u t o m o b i l e f i n a n c i n g .
The
most f r e q u e n t l y mentioned among them were l o a n companies w h i c h s p e c i a l i z e i n
cash l o a n s (Household F i n a n c e , B e n e f i c i a l , and t h e l i k e ) and f r e q u e n t l y advertise.
Only 34 p e r c e n t o f a l l people mentioned one o f t h e f o u r l e a d i n g
companies engaged i n a u t o m o b i l e f i n a n c i n g .
j u s t one company r a t h e r t h a n s e v e r a l .
Most o f these people mentioned
The t a b l e shows t h a t t h e General Motors
Acceptance C o r p o r a t i o n was by f a r t h e most f r e q u e n t l y r e p o r t e d name.
I t should
be added t h a t t h e r e p l y "General M o t o r s " was c o n s i d e r e d an a c c e p t a b l e r e p l y
and coded under GMAC.
Spontaneous r e c a l l o f names r e p r e s e n t s , o f c o u r s e , a severe t e s t .
People may be q u i t e f a m i l i a r w i t h a c o r p o r a t i o n w i t h o u t b e i n g a b l e t o r e c a l l
i t s name a t a g i v e n t i m e .
A second t e s t t h e n c o n s i s t e d o f p r e s e n t i n g respon-
dents w i t h a c a r d on w h i c h f i v e names were l i s t e d .
People were asked, "Would
you p l e a s e t e l l me w h i c h o f these you have heard o f ? "
The f i v e names con-
s i s t e d , i n a d d i t i o n t o t h e f o u r l e a d i n g companies, a f i c t i t i o u s name, made up
f o r t h i s purpose.
Ten p e r c e n t o f t h e p e o p l e r e c o g n i z e d t h e "U. S. Finance
^
Company."
The r e s u l t s o f t h e r e c o g n i t i o n t e s t as shown i n Table 12 were s i m i l a r
t o t h e spontaneous r e c a l l t e s t .
The percentages were, o f c o u r s e , much h i g h e r ,
r o u g h l y t h r e e times as h i g h i n each i n s t a n c e .
companies remained unchanged.
But t h e r a n k o r d e r o f t h e f o u r
-22-
The f i n a l i n q u i r y i n t h i s s e r i e s was d i r e c t e d toward f i n d i n g o u t
which companies people b e l i e v e t o be h i g h l y t h o u g h t o f .
People who recog-
n i z e d t h e name o f a t l e a s t two, sometimes t h r e e , s a l e s f i n a n c e companies were
asked w h i c h o f these were h i g h l y thought o f i n t h e i r o p i n i o n .
was d i r e c t e d t o 44 p e r c e n t o f t h e sample.
This inquiry
W i t h v e r y few e x c e p t i o n s people
mentioned o n l y one s i n g l e company as b e i n g h i g h l y t h o u g h t o f .
Overwhelmingly,
as shown i n Table 13, t h i s company was t h e General Motors Acceptance
tion.
Corpora-
Since t h e s t a r t i n g p o i n t o f t h i s i n q u i r y c o n s i s t e d o f t h e d i s t r i b u t i o n s
presented i n Table 12, i t c o u l d n o t be expected t h a t t h e new q u e s t i o n would
yield very d i f f e r e n t
results.
Survey kesearch Center
-23-
Economic Behavior Program
Table 10
O p i n i o n s about D i f f e r e n c e s among Finance -Companies
Size o f Monthly Payments
All
None
There a r e d i f f e r e n c e s
31%
28%
There a r e no d i f f e r e n c e s
48
Don't know
Not
ascertained
Total
The q u e s t i o n was:
$50 - 99
$100 o r over
30%
40%
42%
46
53
48
43
18
22
16
11
12
3
4
1
1
3
100%
100%
Under $50
100%
100%
100%
"Do you t h i n k t h e r e a r e d i f f e r e n c e s among f i n a n c e companies
o r a r e they a l l a l i k e ?
Survey Research Center
-24-
Economic B e h a v i o r Program
Table 11
Spontaneous R e c a l l o f Names o f Finance Companies
Heard and named one o f f o u r
347„—
GMAC and o t h e r ( s )
25
CIT and o t h e r ( s )
9
Commercial C r e d i t and o t h e r ( s )
7
A s s o c i a t e s and o t h e r ( s )
4
Heard and mentioned names o t h e r than above
30
Heard b u t u n a b l e t o name any
13
Heard o f no f i n a n c e companies
23
Total
1007.
1 / S u b t o t a l s add t o more than 347. because a few respondents mentioned two o r
more f i n a n c e companies.
The q u e s t i o n s were:
"Have you heard o f any f i n a n c e companies?
heard o f ? "
Which have you
Survey Research Center
-25-
Economic Behavior Program
Table 12
Recognition
o f Names o f Finance Companies
Heard and named one o f f i v e
72%^
GMAC and o t h e r ( s )
65
CIT and o t h e r ( s )
27
Commercial C r e d i t and o t h e r ( s )
20
A s s o c i a t e s and o t h e r ( s )
13
U. S. Finance and o t h e r ( s )
10
Heard o f no f i n a n c e companies
24
Not a s c e r t a i n e d
4
Total
100%
1/ S u b t o t a l s add t o more t h a n 727, because respondents mentioned
f i n a n c e companies.
The q u e s t i o n was:
several
"Here a r e t h e names o f a few f i n a n c e companies.
Would you p l e a s e t e l l me w h i c h you have heard o f ? "
Survey Research Center
-26-
Economic Behavior Program
Table 13
H i g h l y Thought o f Finance
A.
Companies
By Income
Under
$3000
All
$3000
-4999
*
Income
$7500
$5000
-9999
-7499
$10,000
and over
Associates alone
Commercial C r e d i t alone
U. S. Finance a l o n e
U n i v e r s a l CIT alone
GMAC a l o n e
A s s o c i a t e s and o t h e r s
Two o r more o t h e r s
None
Don't know; n o t a s c e r t a i n e d
2
17
2
11
1
8
1
9
1
6
1
10
2
20
2
12
1
8
1
24
2
12
2
7
3
18
4
'21
1
3
2%
1
2
16
3
14
1
15
Question n o t a s k e d ^
56
70
52
50
46
46
100%
100%
100%
100%
100%
100%
Total
1%
2
*
B.
1%
2
2%
*
*
1%
1
*
1%
3
*
By Debt
Size o f Monthly Payments
None
Associates alone
Commercial C r e d i t a l o n e
U. S. Finance alone
U n i v e r s a l CIT alone
GMAC alone
A s s o c i a t e s and o t h e r s
Two o r more o t h e r s
None
Don't know; n o t a s c e r t a i n e d
Question n o t asked-^
Total
Under $50
$50 - 99
1%
2
*
1
14
1
9
1
9
62
*
*
2
18
3
12
2
6
55
1
24
4
16
1
8
43
100%
100%
100%
*
2%
1%
2
$100 or over
3%
*
*
4
30
5
21
1
7
29
100%
* Less than o n e - h a l f o f one p e r c e n t .
1/ Because respondent heard o f no f i n a n c e company o r o n l y one.
The q u e s t i o n was:
"Which o f t h e ones you have heard o f a r e h i g h l y thought o f ? "
5.
A t t i t u d e s Toward I n s t a l l m e n t C r e d i t
I n an a n a l y s i s o f the p r o s p e c t s o f s a l e s f i n a n c e companies, i t i s
o f course n o t enough t o s t u d y t h e i r c o m p e t i t i v e p o s i t i o n .
Even b e f o r e we
r a i s e the q u e s t i o n about the r e s p e c t i v e shares o f s a l e s f i n a n c e companies
and banks i n the volume o f consumer i n s t a l l m e n t c r e d i t , we must d i s c u s s the
problem o f i n s t a l l m e n t b u y i n g i t s e l f .
We now t u r n t o an a n a l y s i s o f t h i s
problem, namely, consumer a t t i t u d e s toward b u y i n g on i n s t a l l m e n t as a g a i n s t
p a y i n g cash.
T h i s i s a p r o b l e m w h i c h the Survey Research Center has s t u d i e d i n
some d e t a i l over the p a s t f i f t e e n y e a r s .
World War
The f i n d i n g s o b t a i n e d s h o r t l y a f t e r
I I as w e l l as i n r e c e n t y e a r s can be expressed i n t h e f o l l o w i n g
statement:
Buying on. i n s t a l l m e n t i s n o t something t o l e r a t e d as an u n d e s i r a b l e
n e c e s s i t y b u t i s something f u l l y accepted and even l i k e d by broad p o p u l a t i o n
groups.
are
To be s u r e , t h e r e are people opposed t o i n s t a l l m e n t b u y i n g and
o t h e r s whose e v a l u a t i o n o f i n s t a l l m e n t b u y i n g i s a c a u t i o u s one.
there
But
these people may be expected t o d e c l i n e i n number, t o a l a r g e e x t e n t because o f
t h e i r demographic
characteristics.
Older people have always been one o f t h e
s i g n i f i c a n t groups i n w h i c h o p p o s i t i o n t o i n s t a l l m e n t b u y i n g was
frequent;
when such opponents pass away they a r e o f t e n r e p l a c e d by people who
In their
m i d d l e age thought f a v o r a b l y o f i n s t a l l m e n t b u y i n g and m a i n t a i n e d t h i s o r i e n t a t i o n even when t h e y advanced i n age.
I n the f i r s t few y e a r s a f t e r f a m i l y
f o r m a t i o n a t t i t u d e s toward i n s t a l l m e n t c r e d i t are u s u a l l y f a v o r a b l e ; t h e r e f o r e
y e a r a f t e r year new a d h e r e n t s o f i n s t a l l m e n t c r e d i t e n t e r t h e market.
The o v e r - a l l t r e n d o f a t t i t u d e s toward i n s t a l l m e n t c r e d i t over t h e
p a s t few y e a r s i s shown i n Table 14.
I t i s seen t h e r e t h a t t h e major change
i n the p a s t t h r e e y e a r s was an i n c r e a s e i n t h e p r o p o r t i o n o f adherents a t
the
expense o f undecided p e o p l e .
The change d u r i n g the p a s t t h r e e y e a r s i s
-27-
-28-
t r a c e d t o t h e v a r i o u s income groups i n Table 15 and t o p o p u l a t i o n groups
d i v i d e d a c c o r d i n g t o t h e e x t e n t o f t h e i r indebtedness
i n Table 16. I t can
be seen from Table 15 t h a t i n s t a l l m e n t c r e d i t i s l e a s t p o p u l a r among those
w i t h t h e l o w e s t and h i g h e s t Incomes, b u t t h e Increase i n p o p u l a r i t y has extended t o a l l Income groups.
A c c o r d i n g t o Table 16 i n s t a l l m e n t b u y i n g i s
opposed most commonly by those who had no i n s t a l l m e n t d e b t .
c a u s a t i o n may have r u n i n e i t h e r o f two d i r e c t i o n s :
N a t u r a l l y , the
Because o f t h i n k i n g
u n f a v o r a b l y o f i n s t a l l m e n t c r e d i t some people may n o t have made use o f i t ;
a l t e r n a t i v e l y , because o f n o t n e e d i n g i n s t a l l m e n t c r e d i t and n o t making use
o f i t , people may speak d e p r e c a t i n g l y o f i t .
I t i s i l l u m i n a t i n g t o f i n d o u t what people have i n mind when they
say t h a t i t i s a good i d e a o r a bad idea t o buy t h i n g s on t h e i n s t a l l m e n t
plan.
A f t e r respondents have made t h i s c h o i c e i n t h e i n t e r v i e w , they were
asked t h e simple q u e s t i o n , "Why do you t h i n k so?"
I n answer t o t h i s q u e s t i o n
p r a c t i c a l l y a l l respondents e x p l a i n e d t h e i r o p i n i o n s i n d e t a i l i n s e v e r a l
surveys
(Table 1 7 ) . Most o f those who s a i d t h a t i n s t a l l m e n t b u y i n g i s a
good idea e x p l a i n e d t h a t t h i s i s t h e r i g h t way f o r b u y i n g t h i n g s .
t o pay f o r t h i n g s w h i l e u s i n g them.
I t i s good
They s t r e s s e d t h a t they and many o f t h e i r
r e l a t i v e s , f r i e n d s and n e i g h b o r s c o u l d n o t buy t h e t h i n g s they needed i f i t
were n o t f o r b u y i n g on t i m e .
P r a c t i c a l l y a l l t h e 48 p e r c e n t o f people who
i n November 1959 s a i d so worded t h e i r answers i n a way w h i c h i n d i c a t e d t h e i r
approval o f i n s t a l l m e n t
buying.
Those who a r e opposed t o i n s t a l l m e n t c r e d i t ( s a y t h a t i t i s a bad
i d e a ) f a l l i n t o t h r e e major groups.
grounds; t h e y do n o t b e l i e v e i n debt.
Some a r e opposed t o c r e d i t on m o r a l
Some say a v a i l a b i l i t y o f i n s t a l l m e n t
c r e d i t induces people t o buy t o o much; i n t h e i r eyes i n s t a l l m e n t c r e d i t has
an adverse e f f e c t on t h e f i n a n c i a l p o s i t i o n o f many f a m i l i e s .
Finally, a
f a i r l y c o n s t a n t p r o p o r t i o n o f p e o p l e , about one o u t o f every s i x , says t h a t
i n s t a l l m e n t c r e d i t i s t o o expensive.
-29-
What k i n d o f purchases do consumers have i n mind when they say t h a t
i t i s a good idea o r a bad idea t o buy " t h i n g s " on t h e i n s t a l l m e n t plan?
They speak p r i m a r i l y o f a u t o m o b i l e s , household
a p p l i a n c e s , and o f f u r n i t u r e .
But i t i s n o t enough t o r e l y on such spontaneous r e f e r e n c e s t o v a r i o u s goods,
and t h e r e f o r e t h e Survey Research Center proceeded t o ask s p e c i f i c q u e s t i o n s
r e g a r d i n g a v a r i e t y o f p o s s i b l e uses o f c r e d i t .
d i f f e r e n t m a t t e r s were mentioned
As seen i n Table 18, e i g h t
t o t h e r e s p o n d e n t s , b o t h i n 1957 and 1959,
and r e g a r d i n g each o f them t h e q u e s t i o n was asked whether " i t i s a p p r o p r i a t e
for
someone l i k e y o u r s e l f t o borrow money" f o r those purposes.
(Frequently
people who buy an a u t o m o b i l e on time do n o t c o n s i d e r t h a t they a r e b o r r o w i n g
money.
T h e r e f o r e t h i s e x p r e s s i o n was n o t used i n t h e f i r s t q u e s t i o n on i n -
stallment c r e d i t .
Y e t t h e e x p r e s s i o n c o u l d be used a f t e r respondents had
a l r e a d y answered s e v e r a l q u e s t i o n s about i n s t a l l m e n t b u y i n g . )
I t can be seen from Table 18 t h a t t h e r e a r e two overwhelmingly
approved purposes o f c r e d i t .
Only v e r y few people say t h a t t h e y would n o t
borrow money t o cover expenses due t o i l l n e s s .
Most people answer "yes t o
11
t h i s q u e s t i o n w h i c h , t h e y t h i n k , i m p l i e s a necessary purpose f o r b o r r o w i n g - even though, i n f a c t , i n case o f i l l n e s s t h e y would
r o w i n g money.
t r y h a r d t o a v o i d bor-
To f i n a n c e e d u c a t i o n a l expenses i s a s o c i a l l y a c c e p t a b l e
purpose w h i c h a g a i n r e c e i v e s an overwhelming
a f f i r m a t i v e answer even though
such b o r r o w i n g I s done today by v e r y few people.
To f i n a n c e t h e purchase
o f a c a r appears a somewhat more a p p r o p r i a t e
purpose f o r b o r r o w i n g than t o f i n a n c e t h e purchase o f f u r n i t u r e .
To pay b i l l s
w h i c h have p i l e d up i s a more a c c e p t a b l e purpose than t o cover l i v i n g expenses when income i s c u t .
of
Only a v e r y s m a l l p r o p o r t i o n o f people approve
b o r r o w i n g t o cover t h e expenses o f a v a c a t i o n t r i p , and s t i l l
fewer
approve o f b o r r o w i n g t o f i n a n c e t h e purchase o f a f u r c o a t o r j e w e l r y .
people
-30-
The rank o r d e r g i v e n t o t h e v a r i o u s purposes i s q u i t e s i m i l a r i n
the v a r i o u s income groups as shown i n supplementary t a b l e s . I t i s a l s o shown
t h e r e t h a t most respondents d e s i g n a t e d two, t h r e e , f o u r , o r f i v e purposes as
a p p r o p r i a t e purposes f o r b o r r o w i n g .
One o f the c r u c i a l q u e s t i o n s has been r a i s e d b e f o r e when we
stated
t h a t i n s t a l l m e n t c r e d i t i s n o t seen s i m p l y as an u n a v o i d a b l e n e c e s s i t y .
This
statement i m p l i e s t h a t some people- a t l e a s t would buy on i n s t a l l m e n t even i f
they had t h e necessary cash and c o u l d a v o i d b o r r o w i n g .
More g e n e r a l l y , our
statement i m p l i e s t h a t i n c o n s i d e r i n g t h e two a l t e r n a t i v e s , b u y i n g a l a r g e
t i c k e t i t e m now on the i n s t a l l m e n t p l a n o r d e l a y i n g t h a t purchase f o r s e v e r a l
months u n t i l the necessary cash i s accumulated, v e r y many people choose the
f i r s t one.
Repeatedly i t has been shown f r o m p a s t Surveys o f Consumer F i -
nances t h a t people have purchased on the i n s t a l l m e n t p l a n even though the
money t h e y had i n savings o r c h e c k i n g accounts would have s u f f i c e d t o pay
f o r the respective a r t i c l e .
I n November 1959 t h i s p r o b l e m was
s t u d i e d by a s k i n g the respondents
the f o l l o w i n g q u e s t i o n s : " Speaking o f b u y i n g a c a r on t i m e , Mr. Smith has
j u s t done so a l t h o u g h he has enough money i n the bank t o pay cash; why do
you t h i n k he bought the c a r on time?
What k i n d o f a man
i s he?"
The answers
a r e p r e s e n t e d i n Tables 19 and 20 and show t h a t o n l y a s m a l l p r o p o r t i o n of
people f a i l e d t o u n d e r s t a n d t h e b e h a v i o r o f Mr. Smith o r c h a r a c t e r i z e d him
as a s t u p i d o r f o o l i s h man.
A c c o r d i n g t o Table 19 d e r o g a t o r y remarks about
Mr. Smith were made by 17 p e r c e n t o f a l l p e o p l e , n e u t r a l remarks o r i n a b i l i t y
t o express an o p i n i o n about Mr. Smith by 31 per c e n t ( t h i s p r o p o r t i o n i n c l u d e s ,
o f c o u r s e , many p o o r l y educated people who c o u l d n o t express t h e i r
thoughts),
w h i l e complimentary s t a t e m e n t s about Mr. Smith were made by 52 per c e n t .
S i m i l a r l y , we f i n d i n Table 20 t h a t no fewer t h a n 68 per c e n t o f t h e
people c o u l d f i n d a m e a n i n g f u l reason w h i c h e x p l a i n e d t o t h e i r
satisfaction
why Mr. Smith bought h i s c a r on t i m e even though he had enough money i n t h e
-31-
bank t o pay cash.
The most f r e q u e n t o f these reasons was, o f c o u r s e ,
the money i n t h e bank was earmarked f o r something
else.
that
Liquid reserves i n
the form o f bank accounts a r e seen p r i m a r i l y as r e s e r v e s f o r a r a i n y day;
therefore,
t h e y should n o t be used f o r p a y i n g f o r t h e c a r .
should be k e p t i n t a c t , so v e r y many people s a i d .
f u r t h e r arguments a t t r i b u t e d t o Mr. Smith.
stallment
Bank accounts
Of i n t e r e s t a r e t h r e e
One i s t h a t by b u y i n g on t h e i n -
p l a n one e s t a b l i s h e s c r e d i t ; another i s t h a t by b u y i n g on c r e d i t
r a t h e r than p a y i n g cash one g e t s b e t t e r s e r v i c e ,
sometimes even t h a t one
gets a b e t t e r p r i c e ; and f i n a l l y , 5 p e r c e n t s a i d i n essence t h a t i t i s d i f f i c u l t t o replace savings.
I n o t h e r words, a f t e r p a y i n g cash f o r a c a r one i s
n o t under any p r e s s u r e t o r e p l e n i s h
t h e d e p l e t e d bank d e p o s i t s .
But a f t e r
b u y i n g on i n s t a l l m e n t one must make t h e m o n t h l y payments o u t o f income so
t h a t a f t e r a couple o f y e a r s one owns a c a r on w h i c h t h e r e i s no debt and
s t i l l has one's untouched
l i q u i d reserves.
The data c l e a r l y i n d i c a t e t h a t these reasons a t t r i b u t e d t o Mr.
Smith a r e viewed by t h e m a j o r i t y o f people as s u f f i c i e n t reasons, approved
o f by t h e respondents.
A person who a c t s t h a t way and buys on t h e i n s t a l l -
ment p l a n i s c h a r a c t e r i z e d as i n t e l l i g e n t , as i n f o r m e d , as one who p l a n s
ahead, o r as c a u t i o u s and c o n s e r v a t i v e much more f r e q u e n t l y than as a wise
guy, o r as a p a r t i c u l a r l y smart o r shrewd f e l l o w .
Survey Research Center
Economic Behavior Program
-32-
Table 14
A t t i t u d e s toward I n s t a l l m e n t Buying
I n s t a l l m e n t Buying i s -
Jan-Feb. 1954
Aug. 1956
Nov-Dec. 1957
Nov. 1959
Good i d e a
50%
51%
55%
60%
Pro-con, don't know
10
15
9
7
Bad
37
33
35
32
idea
Not a s c e r t a i n e d
Total
The q u e s t i o n was:
3_
100%
1
100%
1_
100%
1
100%
"As you know many people buy t h i n g s on t h e i n s t a l l m e n t p l a n
these days. Do you p e o p l e t h i n k i t i s a good i d e a or a bad
i d e a t o buy t h i n g s on t h e i n s t a l l m e n t p l a n ? "
Economic Behavior Program
-33-
Survey Research Center
Table 15
A t t i t u d e s toward I n s t a l l m e n t Buying by Income
November 1959
.
Under
$3000
$3000
-4999
Income
$5000
-7499
$7500
-9999
$10,000
and over
I n s t a l l m e n t Buying i s -
All
Good idea
607.
55%
64%
63%
62%
56%
7
10
5
6
5
8
32
33
30
31
32
36
1
2
1
*
1_
*
100%
100%
100%
100%
Pro-con; don't know
Bad
idea
Not a s c e r t a i n e d
Total
100%
100%
August 1956
Good Idea
51%
49%
50%
55%
58%
44%
Pro-con; don't know
15
14
14
14
16
19
Bad idea
33
36
35
30
26
36
Not a s c e r t a i n e d
1
1
1
1
*
1
Total
1007.
F o r q u e s t i o n , see Table 14.
100%
100%
100%
100%
1007.
Survey Research Center
-34-
Economic Behavior Program
Table 16
A t t i t u d e s toward I n s t a l l m e n t B u y i n g by Size o f Debt
November 1959
S i z e o f Monthly Payments
I n s t a l l m e n t Buying i s Good i d e a
Pro-con; don't know
Bad i d e a
Not ascertained
Total
None
Under $50
$50 - 99
$100 - 499
50%
74%
71%
64%
8
5
9
8
41
20
20
28
*
*
1_
1__
100%
100%
100%
100%
August 1956
Size o f I n s t a l l m e n t Debt
None
Under
$100
$100 - 499
$500 - 999
$1000
and over
40%
64%
64%
65%
68%
Pro-con; d o n t know
16
15
13
16
15
Bad idea
43
20
23
19
17
Not a s c e r t a i n e d
1
1
*
*
*
Total
100%
100%
Good i d e a
f
* Less t h a n o n e - h a l f o f one per c e n t .
F o r q u e s t i o n , see Table 14.
100%
100%
100%
Survey Research Center
Economic Behavior Program
-35-
Table 17
Reasons f o r A t t i t u d e s toward I n s t a l l m e n t Buying
Jan-Feb.
1954
Favorable Factors:
Can't buy w i t h o u t b o r r o w i n g , can
use goods w h i l e p a y i n g
Aug.
1956
Nov-Dec.
1957
Nov.
1959
37%
45%
43%
48%
Helps e s t a b l i s h c r e d i t
5
5
3
4
Helps save
3
2
2
1
B e t t e r s e r v i c e i f you s t i l l owe money
3
2
1
1
14
18
17
14
5
5
4
4
16
16
14
15
L i k e l y t o buy t o o much
8
16
10
10
Don't b e l i e v e i n debt
11
11
9
9
1/
1/
1/
1/
Depends:
On how deeply you are i n d e b t , whether
you can make t h e payments
On what you buy o r on who buys
Unfavorable Factors:
Costs t o o much
Total
17 Adds t o more t h a n 100 p e r c e n t because respondents c o u l d mention more t h a n
one reason.
The q u e s t i o n s were:
"As you know, many people buy t h i n g s on t h e I n s t a l l m e n t
p l a n these days. Do you t h i n k i t i s a good i d e a o r a bad
idea t o buy t h i n g s on t h e i n s t a l l m e n t plan? Why do you
t h i n k so?"
Survey Research Center
-36-
Economic Behavior Program
T a b l e 18
P r o p o r t i o n o f F a m i l i e s Who Say They Would Borrow f o r V a r i o u s Purposes
To cover expenses
due t o i l l n e s s
To f i n a n c e
e d u c a t i o n a l expenses
To f i n a n c e t h e
purchase o f a c a r
To f i n a n c e t h e
purchase o f f u r n i t u r e
1957
1959
1957
1959
1957
1959
1957
1959
Yes , would borrow
86%
86%
68%
70%
64%
67%
49%
44%
No, would n o t borrow
13
13
30
28
35
31
49
54
1
1
2
1
2
2
2
Not a s c e r t a i n e d
Total
100%
100%
2_
100%
'To pay b i l l s
w h i c h have p i l e d up
100%
To cover
l i v i n g expenses
when income i s c u t
100%
100%
To cover t h e
expenses o f a
vacation t r i p
100%
100%
To f i n a n c e t h e
purchase o f a
f u r coat o r j e w e l r y
1957
1959
1957
1959
1957
1959
Yes,, would borrow
48%
44%
24%
26%
5%
5%
No, w o u l d n o t borrow
50
54
74
72
93
94
96
97
2
2
2
1
2
1
Not a s c e r t a i n e d
Total
The q u e s t i o n was:
2_
2_
100%
100%
100%
100%
100%
100%
1957
2%
100%
1959
2%
100%
"People borrow f o r many d i f f e r e n t purposes. For what purposes would you say i t i s a p p r o p r i a t e
f o r someone l i k e y o u r s e l f t o borrow money which you pay back over time? (The respondent was
s p e c i f i c a l l y asked about each o f t h e e i g h t purposes.)
l u f - r e y Research Center
-37-
Economic Behavior Program
Table 19
D e s c r i p t i o n o f Person Who Buys on t h e
I n s t a l l m e n t Plan a l t h o u g h He Has S u f f i c i e n t Cash
Income
$5000
$7500
-7499
-9999
All
Under
$3000
$3000
-4999
I n t e l l i g e n t ; i n f o r m e d ; p l a n s ahead
30%
22%
28%
33%
40%
35%
Wise guy; smart; shrewd
11
8
15
11
6
12
Cautious, conservative
11
7
8
15
17
11
Impatient; impulsive; extravagant
1
1
1
1
1
1
Does n o t c a l c u l a t e ; n o t good
w i t h money; p o o r l y i n f o r m e d
4
4
4
4
7
7
S t u p i d ; unwise; f o o l i s h ; c r a z y
12
13
14
11
9
9
O t h e r , average, o r d i n a r y
10
10
8
12
9
13
D o n 1 know
15
27
15
8
7
7
6
8
5
4
5
1
Not a s c e r t a i n e d
Total
For q u e s t i o n , see Table 20.
100%
100%
7_
100%
100%
100%
$10,000
and over
100%
Bv.rvey Research Center
-38-
Economic Behavior Program
Table 20
Reasons A t t r i b u t e d t o Person Who Buys on t h e
I n s t a l l m e n t Plan a l t h o u g h He Has S u f f i c i e n t Cash
Income
$5000
$7500
-7499
-9999
All
Under
$3000
$3000
-4999
42%
40%
41%
47%
51%
35%
Wanted cash f o r something e l s e
9
9
11
7
9
12
D i f f i c u l t t o r e p l a c e savings
5
2
5
6
8
7
To e s t a b l i s h c r e d i t
6
4
6
7
8
6
Better service; better price
5
2
4
8
5
5
Use c a r w h i l e p a y i n g
1
*
1
1
1
*
Other
9
7
10
9
6
22
Only d e r o g a t o r y s t a t e m e n t s ;
no r e a s o n
7
8
8
5
3
2
14
25
12
8
8
7
2
3
2
2_
1
4
Tonkeep bank account
f o r emergencies, i n t a c t
D o n 1 know
1
Not
ascertained
Total
100%
100%
100%
100%
100%
$10,000
and over
100%
* Less than o n e - h a l f o f one p e r c e n t .
The q u e s t i o n s were:
"Speaking o f b u y i n g a c a r on t i m e , Mr. Smith has j u s t done so
a l t h o u g h he has enough money i n t h e bank t o pay cash. Why do
you t h i n k he bought t h e c a r on time? What k i n d o f a man i s
he?"
6.
The Cost o f I n s t a l l m e n t C r e d i t
I n v i e w o f t h e r e c e n t sharp i n c r e a s e i n i n t e r e s t r a t e s , i t i s o f
p a r t i c u l a r importance t o d e t e r m i n e what people know o f t h e c o s t o f i n s t a l l m e n t
credit.
W i t h o u t answering t h i s query i t i s n o t p o s s i b l e t o determine whether
changes i n i n t e r e s t r a t e s have any e f f e c t on i n s t a l l m e n t b u y i n g .
Do people know how much i t c o s t s t o buy on t h e i n s t a l l m e n t plan?
T h i s q u e s t i o n was asked i n t h e survey.
Respondents were g i v e n a s p e c i f i c
example ("Suppose you need a thousand d o l l a r s w h i c h you would repay monthly
over two y e a r s " ) , so t h a t t h e y c o u l d answer e i t h e r i n terms o f percentages o r
costs i n d o l l a r s .
A t t e n t i o n was g i v e n t o o b t a i n i n g t h e c o s t f o r one year.
As can be seen i n Table 2 1 , 39 p e r c e n t o f a l l people d i d n o t give
an answer f r o m which a p r e c i s e e s t i m a t e o f t h e c o s t o f i n s t a l l m e n t c r e d i t
c o u l d be d e r i v e d .
Many o f t h e s e people s a i d s i m p l y t h a t t h e y d i d n o t know,
w h i l e some o t h e r s gave such wide ranges a s , f o r i n s t a n c e , "Oh, between 5 and
15 per c e n t a y e a r " which c o u l d n o t be used.
These people a r e most f r e q u e n t
i n lower income groups among people who have no d e b t , among people w i t h
e d u c a t i o n , and among Negroes, as shown i n supplementary t a b l e s .
little
Yet even
among people w i t h incomes over $10,000 t h e frequency o f those who confess t h a t
they do n o t know how much i n s t a l l m e n t c r e d i t c o s t s i s as h i g h as 32 p e r c e n t ,
among people who a r e now making l a r g e m o n t h l y payments i t i s as h i g h as 24
p e r c e n t , and among people w i t h a c o l l e g e degree i t i s as h i g h as 28 p e r c e n t .
As can be seen i n T a b l e 2 1 , 61 p e r c e n t o f t h e sample made f a i r l y
s p e c i f i c estimates o f the cost o f i n s t a l l m e n t c r e d i t :
23 p e r c e n t s a i d
that
the c o s t i s 6 p e r c e n t p e r y e a r o r l e s s , 22 p e r c e n t p l a c e d t h e c o s t between
7 and 12 p e r c e n t , and 16 p e r c e n t a t 13 p e r c e n t o r h i g h e r .
O b v i o u s l y many
people b e l i e v e t h a t t h e c o s t o f i n s t a l l m e n t b u y i n g i s lower t h a n i t a c t u a l l y
is.
Are these r e l i a b l e o p i n i o n s ?
-39-
-40-
On p r a c t i c a l l y any i t e m o f knowledge o r i n f o r m a t i o n we f i n d
that
high-income people, people w i t h c o l l e g e e d u c a t i o n , and people w i t h p e r s o n a l
experience
i n t h e m a t t e r s t u d i e d a r e b e t t e r Informed t h a n o t h e r people.
T h i s i s n o t borne o u t r e g a r d i n g t h e c o s t o f i n s t a l l m e n t c r e d i t . ^ We f i n d
that
31 p e r c e n t o f people w i t h more than $10,000 income, l i k e w i s e 31 p e r c e n t o f
people w i t h a c o l l e g e e d u c a t i o n , and l i k e w i s e 31 p e r c e n t o f people who make
m o n t h l y payments o f over $100 p l a c e t h e c o s t o f i n s t a l l m e n t c r e d i t a t 6 per
under (see supplementary t a b l e d .
On t h e whole, v a r i o u s p o p u l a t i o n
groups have q u i t e s i m i l a r n o t i o n s about t h e c o s t o f i n s t a l l m e n t c r e d i t .
The
one e x c e p t i o n perhaps i s t h a t on t h e average Negroes p l a c e t h e c o s t o f i n s t a l l m e n t c r e d i t h i g h e r than w h i t e s .
The c o n c l u s i o n t o be drawn from these f i n d i n g s i s t h a t i n v e r y many
i n s t a n c e s we a r e d e a l i n g w i t h uninformed
how much i n s t a l l m e n t c r e d i t c o s t s .
guesses.
Many people have no idea
When t h e q u e s t i o n i s asked o f them, they
m e n t i o n some percentages w i t h w h i c h t h e y a r e f a m i l i a r and w h i c h seem approp r i a t e t o them.
I f people a r e uninformed
about t h e c o s t o f i n s t a l l m e n t c r e d i t even
though they buy on t h e i n s t a l l m e n t p l a n , I t f o l l o w s t h a t they do n o t care
much about t h e c o s t .
T h i s n o t i o n i s borne o u t by t h e f i n d i n g p r e v i o u s l y r e -
p o r t e d t h a t o n l y one o u t o f every s i x persons complained about t h e c o s t o f
i n s t a l l m e n t buying.
Very many people b e l i e v e t h a t t h e advantages o f b u y i n g
on time a r e so l a r g e t h a t a few d o l l a r s d i f f e r e n c e r e s u l t i n g from h i g h e r o r
lower i n t e r e s t r a t e s do n o t m a t t e r .
According
t o these f i n d i n g s , t h e n , i n -
stallment c r e d i t i s insensitive t o fluctuations i n the i n t e r e s t rate.
(On
t h e o t h e r hand, mortgage c r e d i t , and house b u y i n g i n g e n e r a l , was found t o be
r e t a r d e d by r i s i n g i n t e r e s t r a t e s . )
-41-
Other s t u d i e s have shown t h a t h i g h e r I n t e r e s t r a t e s have no n o t i c e a b l e
e f f e c t on t h e r a t e o f s a v i n g .
I n o t h e r words, most people a r e n o t induced
t o r e f r a i n from e x p e n d i t u r e s and t o save more by a somewhat g r e a t e r r e t u r n
a v a i l a b l e on bank d e p o s i t s .
B u t d i f f e r e n t i a l s i n i n t e r e s t r a t e s have
induced
many people t o s h i f t t h e i r r e s e r v e funds, f o r i n s t a n c e , from commercial banks
t o savings and l o a n a s s o c i a t i o n s ( o r , more r e c e n t l y , i n t o such government
n o t e s and b i l l s as t h e "magic f i v e s " ) .
garding installment c r e d i t .
A s i m i l a r s i t u a t i o n may p r e v a i l r e -
W h i l e t h e r a t e o f a u t o m o b i l e b u y i n g on c r e d i t i s
n o t much i n f l u e n c e d by a s m a l l i n c r e a s e i n c a r r y i n g charges, people's n o t i o n s
about d i f f e r e n c e s i n c a r r y i n g charges appear t o i n f l u e n c e t h e i r c h o i c e o f t h e
i n s t i t u t i o n f r o m w h i c h t h e y borrow.
SUfvey Research Center
-42-
Economtc Behavior Program
Table 21
E s t i m a t e o f I n t e r e s t on $1000 Repaid M o n t h l y over 2 Years
Estimate o f
I n t e r e s t per Year
Under 47.
All
27.
Under
$3000
$3000
-4999
17.
37.
Income
$5000
-7499
37.
$7500
-9999
17.
$10,000
and over
1%
4 - 67.
21
7
21
26
38
30
7 - 97.
9
6
10
10
13
10
10 - 127.
13
10
14
14
17
14
13 - 157.
3
2
3
5
2
3
16 - 207.
6
5
7
8
5
8
217. and over
7
9
8
6
5
2
31
52
24
21
13
22
Not a s c e r t a i n e d
8
8
10
7
6
10
Total
1007.
1007.
1007.
1007.
1007.
D o n t know o r
uncodable answer
1
The q u e s t i o n was:
1007.
"Do you happen t o know how much i n t e r e s t o r c a r r y i n g charges
one has t o pay t o buy a c a r on t i m e ; suppose you need a
thousand d o l l a r s w h i c h you would repay m o n t h l y over 2 y e a r s ;
about how much do you t h i n k t h e i n t e r e s t o r c a r r y i n g charges
would be each y e a r ? "
Appendix:
The
Methodology
n a t i o n w i d e sample I n t e r v i e w surveys conducted by the Survey
Research Center a r e c a r r i e d o u t i n 66 p r i m a r y sampling u n i t s (composed o f a
c o u n t y o r group o f c o u n t i e s ) , i n c l u d i n g 12 o f t h e l a r g e s t m e t r o p o l i t a n areas
and
54 o t h e r sampling u n i t s s e l e c t e d by p r o b a b i l i t y methods from a l l t h e non-
metropolitan counties
i n the United
States.
Within the selected
primary
s a m p l i n g u n i t s , c i t i e s , towns, o r o p e n - c o u n t r y segments a r e s e l e c t e d ,
then
c i t y b l o c k s , and f i n a l l y d w e l l i n g u n i t s - - a l w a y s by a process o f random s e l e c tion.
nately.
I n the s e l e c t e d d w e l l i n g u n i t s , husband and w i f e a r e i n t e r v i e w e d
alter-
The i n t e r v i e w e r s a r e c a r e f u l l y t r a i n e d ; they a r e n o t p e r m i t t e d t o
s u b s t i t u t e respondents n o r t o d e v i a t e
f r o m w o r d i n g and sequence o f t h e ques-
t i o n s prepared.
Even t h e b e s t conducted surveys a r e s u b j e c t t o e r r o r s .
respondents r e f u s e
Some s e l e c t e d
t o be i n t e r v i e w e d , o r a r e n o t found a t home i n s p i t e o f
r e p e a t e d c a l l s , o r a r e s i c k , o r do n o t speak E n g l i s h .
Altogether,
interviews
were completed w i t h 85 p e r cent o f t h e s e l e c t e d respondents i n t h i s survey.
Sampling e r r o r s a r i s e because a sample r a t h e r t h a n t h e e n t i r e
p o p u l a t i o n has been i n t e r v i e w e d .
The s i z e o f t h e s a m p l i n g e r r o r s i s shown
i n Tables 29 and 30. F o r many i m p o r t a n t d a t a p r e s e n t e d i n t h i s r e p o r t ,
sampling errors--and
survey e r r o r s i n g e n e r a l - - c a n be d i s r e g a r d e d
because
t h e d i f f e r e n c e s as shown i n t h e t a b l e s exceed by f a r any p o s s i b l e range of
errors.
For instance^we see from T a b l e 2B t h a t 5 p e r c e n t o f t h e sample s a i d
t h a t a person who made t h e c r e d i t arrangements w i t h a c a r d e a l e r
is intelli-
gent o r i n f o r m e d , w h i l e 47 p e r c e n t o f t h e same sample s a i d so about a person
who made t h e c r e d i t arrangements w i t h a bank.
A d i f f e r e n c e o f f o u r percentage
p o i n t s between t h e two f i n d i n g s would have s u f f i c e d t o make t h e d i f f e r e n c e
s t a t i s t i c a l l y s i g n i f i c a n t a t t h e 95 p e r c e n t p r o b a b i l i t y l e v e l ; i n f a c t , t h e
d i f f e r e n c e was 42 p e r c e n t .
-43-
-44-
To be s u r e , t h e r e a r e numerous t a b l e s i n which the d i f f e r e n c e s are
much s m a l l e r .
The s i z e o f t h e sampling e r r o r depends on the number o f cases
on which a g i v e n s t a t i s t i c i s based, and i s t h e r e f o r e h i g h e r f o r subgroups
o f t h e sample than f o r t h e e n t i r e sample.
For i n s t a n c e , i n Table 21 we f i n d ,
i n comparing two f a i r l y s m a l l c e l l s , t h a t among people w i t h over $10,000
income 31 p e r c e n t and among people w i t h an income between $7500 and $10,000
a year 39 p e r c e n t e s t i m a t e d t h e c o s t o f i n s t a l l m e n t c r e d i t a t 6 per c e n t o r
l e s s per y e a r .
at
T h i s d i f f e r e n c e happens t o be on t h e b o r d e r l i n e o f s i g n i f i c a n c e
the 95 p e r c e n t
level.
I n o r d e r t o make t h i s judgment, t h e r e a d e r needs t o know, i n a d d i t i o n t o t h e sampling e r r o r s p r e s e n t e d i n Table 30, t h e number o f cases which
f o r m t h e b a s i s o f each s t a t i s t i c .
They a r e p r e s e n t e d i n Table 3 1 .
Supplementary Tables
-45
Survey Research Center
Economic Behavior Program
Table 22
Assumed A c t i o n by Car Dealer i n Case o f D e f a u l t
I f Mr. Jones who made arrangements w i t h t h e
c a r d e a l e r cannot make a payment what w i l l happen?
All
S p e c i f i c d r a s t i c a c t i o n ; repossession;
Income
$5000
-7499
$7500
-9999
$10,000
and over
Under
$3000
$3000
-4999
437.
427.
457.
437.
447.
457.
3
3
2
3
3
3
17
14
16
21
18
14
4
2
3
4
5
6
17
14
22
16
21
15
N o t h i n g w i l l happen
,1
1
1
1
1
3
Depends on t h e c a r d e a l e r
3
3
3
4
5
6
12
21
8
8
3
8
100%
1007.
1007.
lawsuit
Take steps t o be sure they a r e c o l l e c t e d
A c t i o n o n l y a f t e r delay
Tougher t h a n bank
An easy accommodation
Don't know; n o t a s c e r t a i n e d
Total
1007.
1007.
1007.
1
Economic Behavior Program
Survey Research Center
T a b l e 23
Assumed A c t i o n by Bank i n Case o f D e f a u l t
Income
$5000
-7499
$7500
-9999
$10,000
and over
All
Under
$3000
$3000
-4999
15%
24%
16%
8%
9%
9%
2
1
2
2
3
5
13
9
15
17
11
14
1
*
*
*
*
51
40
53
57
66
56
happen
2
*
2
2
3
3
Depends o n t h e bank
2
2
1
3
2
3
14
24
11
11
100%
100%
100%
100%
I f Mr. Smith who went t o a bank
cannot make a payment, what w i l l
happen?
S p e c i f i c d r a s t i c a c t i o n ; repossession
Take s t e p s t o be s u r e t h e y c o l l e c t e d
A c t i o n only a f t e r delay
Tougher t h a n f i n a n c e company
Easy accommodation; l o a n extended; r e a c h
an agreement
Nothing w i l l
Not a s c e r t a i n e d ; don't know
Total
* Less t h a n o n e - h a l f o f one p e r c e n t .
*
6_
100%
10
100%
Survey Research Center
Economic Behavior Frogram
Table 24
A p p r o p r i a t e Purposes f o r Borrowing
$3000
-4999
Income
$5000
-7499
$7500
-9999
$10,000
and over
A p p r o p r i a t e Purposes f o r B o r r o w i n g
All
Under
$3000
To cover expenses due t o i l l n e s s
86%
83%
86%
92%
86%
85%
To f i n a n c e e d u c a t i o n a l expenses
70
56
74
74
81
83
To f i n a n c e t h e purchase o f a c a r
67
46
69
72
74
61
To f i n a n c e t h e purchase o f f u r n i t u r e
44
34
49
50
49
41
To pay b i l l s w h i c h have p i l e d up
44
45
48
41
39
40
To cover l i v i n g expenses when income i s c u t
26
33
26
22
21
23
5
3
5
6
8
5
2
3
2
2
3
3
**
**
**
**
irk
**
To cover t h e expense o f a v a c a t i o n
trip
To f i n a n c e t h e purchase o f a f u r coat o r j e w e l r y
** Adds t o more than 100 p e r c e n t because respondents c o u l d m e n t i o n more t h a n one a p p r o p r i a t e purpose.
For q u e s t i o n , see Table 18.
Economic Behavior Program
Survey Research Center
Table 25
Number o f A p p r o p r i a t e Purposes f o r Borrowing
Income
Number o f A p p r o p r i a t e
Purposes f o r B o r r o w i n g
All
None
57.
One
8
Two
15
Three
24
Four
22
Five
17
Six
6
Seven
1
Eight
1
Not a s c e r t a i n e d
1
Total
1007.
* Less t h a n o n e - h a l f o f one p e r cent.
F o r q u e s t i o n , see Table 18.
Under $3000
$3000-4999
$5000-7499
$7500-9999
$10,000 and over
10%
3%
2%
3%
4%
14
8
6
5
4
17
14
12
12
22
20
23
29
23
23
18
2:
24
35
23
12
2:
19
14
16
6
7
6
5
*
1
2
3
I
*
*
1_
*
100%
100%
100%
100%
100%
Survey ReSeatsh Center
Economic Behavior Program
Table 26
E s t i m a t e o f I n t e r e s t on $1000 Repaid
M o n t h l y over 2 Years, by Size o f Debt
Size o f M o n t h l y Payments
E s t i m a t e o f I n t e r e s t p e r Year
Under 4%
None
1%
Under $50
2%
$50 - 99
2%
$100 o r over
47,
4 - 6%
17
22
34
27
9%
8
9
12
13
10 - 127.
14
10
13
22
13 - 15%
3
3
4
1
16 - 20%
6
7
8
4
217. and over
6
9
8
5
Don't know o r uncodable
answer
35
31
13
20
Not ascertained
10
7
6
4
Total
100%
100%
10G7.
100%
1
-
F o r q u e s t i o n , see Table 2 1 .
Survey Research
Economic Behavior Program
Center
Table 27
E s t i m a t e o f I n t e r e s t on $1000 Repaid M o n t h l y over 2 Years by E d u c a t i o n
Estimate o f
I n t e r e s t Per Year
Grade
s c h o o l ; none
Under 4%
Some h i g h
school
Education
Completed
h i g h school
3%
3%
1%
Some
college
College
degree
1%
1%
/
^
s
4 - 6%
11
24
27
25
7 - 9%
6
8
11
15
12
10 - 12%
r^ 1 2
, 11
13
18
r ~i4
13 - 15%
(
2
V
3
4
5
3
7
8
6
V_5
46
25
23
16
8
10
8
Not a s c e r t a i n e d
Total
^
7
2 1 % and over
1
4
7
16 - 20%
D o n t know
r
100%
For q u e s t i o n , see Table 2 1 .
j
100%
7_
100%
L
6
18
10
10
100%
100%
>
Economic Behavior Program
Survey Research Center
Table 28
E s t i m a t e o f I n t e r e s t on $1000
Repaid Monthly over . 2 Years by Race
Race
E s t i m a t e o f I n t e r e s t p e r Year
Under 47.
AH
27.
White
27.
Negro
47.
4 - 67.
21
22
11
7 - 97.
9
10
5
10 - 127.
13
13
9
13 - 157.
3
3
3
16 - 207.
6
6
6
217. and over
7
6
13
31
29
44
Not a s c e r t a i n e d
8
9
5
Total
1007.
1007.
1007.
D o n t know
1
For q u e s t i o n , see Table 2 1 .
Survey fteseftfcn Center
Economic Behavior Program
Table 29
Approximate Sampling E r r o r s o f Reported Percentages
(Expressed i n Percentages)
Number o f I n t e r v i e w s on Which Percentage I s Based
Reported Percentage
1000
700
500
300
200
50%
3.8
4.5
5.2
6.7
8.2
30 o r 7G%
3.4
4.2
4.8
6.1
7.4
20 o r 80%
3.0
3.6
4.2
5.3
6.6
10 o r 90%
2.2
2.7
3.1
4.0
4.8
5 o r 95%
1.6
1.9
2.2
2.9
3.6
Survey Research Center
Economic Behavior Program
Table 30
Approximate Sampling E r r o r s o f D i f f e r e n c e s
(Expressed i n Percentages)
Size o f Sample o r Subgroup
Size o f Sample
o r Subgroup
1500
1000
700
500
300
200
For percentages from about 357« t o 657.
1500
4.5
1000
4.9
5.4
6.1
7.4
8.7
5.4
5.9
6.4
7.7
9.0
6.3
6.9
8.0
9.3
7.4
8.4
9.7
9.5
10.5
700
500
300
200
11.5
For percentages around 207. and 80%
1500
3.5
1000
3.9
4.4
4.8
6.0
6.9
4.3
4.6
5.2
6.1
7.2
5.1
5.5
6.4
7.4
6.0
6.7
7.8
7.6
8.4
700
500
300
200
9.2
For percentages around 10% and 907©
1500
1000
700
500
300
200
2.7
2.9
3.3
3.7
4.4
5.3
3.2
3.6
3.9
4.6
5.4
3.8
4.1
4.8
5.6
4.4
5.1
5.8
5.7
6.3
6.9
Survey Research Center
Economic Behavior Program
Table 31
Number o f Cases i n D i f f e r e n t C e l l s
T o t a l sample « 1332 cases
Income Groups
Size o f M o n t h l y Payments
Under $3000
365 cases
None
753 casei
$3000 - 4999
345
Under $50
288
$5000 - 7499
331
"
$50 - 99
196
$7500 - 9999
146
"
$100 o r over
$10,000 and over
106
"
Place o f Residence
77
Education
Large m e t r o p o l i t a n c i t i e s
181 cases
Grade school
471
Other l a r g e c i t i e s
227
"
Some h i g h school
264
Suburban areas
353
"
Completed h i g h school
289
Small towns
234
"
Some c o l l e g e
134
R u r a l areas
337
"
Has c o l l e g e degree
156
Race
White
Negro
1162 cases
140
"
cases
"
11