Understanding personal loan repayment intentions: The role of financial literacy, attitudes, norms, and self-efficacy

With personal loan uptake increasing at an unprecedented rate, the need to understand the factors that drive consistent debt repayment has never been more critical. Failure to meet repayment obligations poses severe financial risks, such as damaged credit ratings, travel restrictions, and bankruptcy. This highlights the urgent need to investigate the underlying factors influencing borrowers' repayment behavior. This study examines a significant issue by investigating the relationship among attitudes, injunctive and descriptive norms, financial self-efficacy, financial literacy, and the intention to repay personal loans, utilizing an extended Theory of Planned Behavior (TPB) model. Using Partial Least Squares Structural Equation Modeling (PLS-SEM), data from 443 active personal loan borrowers were analyzed to reveal critical drivers of repayment intention. On top of that, Gaussian Copula method (instrumental variable-free approach) has been employed to address the potential endogeneity of the model. The results show that attitude, subjective financial literacy, financial self-efficacy, and injunctive norms significantly influence debt repayment intention. Additionally, self-efficacy and financial attitudes mediate between financial literacy and consistent repayment intentions. This finding highlights the significance of promoting financial literacy and influencing borrowers' behavior to minimize the risk of default. As the financial consequences of non-repayment continue to rise, this study offers timely insights for financial institutions and policymakers. The findings could be crucial in promoting responsible lending, thereby ensuring financial stability.