Buy now, pain later: the impact of borrowing on perceived financial constraint and monetary outlays

Payment plans are becoming an increasingly popular financing option for consumers, yet have received limited attention in the marketing literature. This research explores the consequences of payment plan usage on perceptions of financial constraint and subsequent financial behaviors. We find that, ex-ante, consumers expect payment plans to reduce financial constraint compared to paying upfront. Contrary to these expectations, borrowing with a payment plan increases perceived financial constraint over the course of the loan. This also leads to a reduction in non-focal monetary outlays, including both spending and saving allocations. This research contributes to literature on personal debt, resource scarcity, and misprediction.