[dredmorbius]

That does raise some interesting questions.

I should have clarified: zero default risk.

There's still the time / opportunity cost of money, and it's possible that a loan might not be repaid at any given rate. The interest would reflect this. And inflation risk would have to be factored in.

There's also a case that might be made that offering of loans isn't entirely competitive. Dynamics of that, and implications on interest rates resulting from that condition could be interesting to explore.

[umanwizard]

Well, what's your point, then? You were replying in a thread about whether the 8% interest rate is justified. The comment you replied to claimed that it was, because of the higher risk. Clearly this means all risk, not just risk of default.

Also, risk of default is non-zero. Google the Brunner test.