The Instalment payment effect on consumer spending

This research finds that a new instalment payment method offering consumers short-term interest-free payment deferral increases consumer spending (vs. cash and credit cards). Consumers perceive the instalment price as less expensive than the equivalent total price, which subsequently lowers the pain of payment. Ultimately, lower pain of payment increases consumer purchase intention and the choice of more expensive items. Four experiments demonstrate the psychological process underlying the effect of instalment payments on spending, supporting the role of the numerosity heuristic in influencing price perception of instalment prices. The presence of instalment prices increases spending with the instalment payment method, but not spending with credit cards. For retailers, the implication is that offering instalment payments and displaying instalment prices can increase consumer spending. For policymakers, restricting the presentation of instalment prices may be a novel means to prevent consumer overspending
with the instalment payment method.