Predictors of the Propensity to Incur Loans for Varying Purposes in the Future*
Purpose: This study examines the socioeconomic and psychological variables predicting the propensity to incur loans for different purposes in the future such as loans for necessities, hedonistic, long-term investments, and others. Design/Methodology/Approach: Hierarchical linear regression and dominance analyses have been conducted. Findings: Openness to loan-taking is the only predictor of loans for hedonistic purposes, and a dominant predictor of other loans, excluding loans for long-term investments which depend more on total debt, aversion to planning, and life satisfaction. Loans for relatives depend on an openness to spending money on others and on locus of control. A subjective assessment of one’s own financial situation is predictive of loans for necessities. Practical Implications: The communication directed to consumers should be varied depending on the motivation underpinning the decision to make a financial commitment and matched with the psychological characteristics of the borrowers. Controlling the borrower’s subjective assessment of their own financial situation will facilitate a more accurate prediction of what kind of borrower he or she will be. Originality/value: Research to date on the credit use has focused primarily on economic factors. Our study has shown that psychological and subjective factors (especially self-perception of one's financial situation) are at least equally important in explaining propensity to incur loans for varying purposes.