[wutbrodo]

This doesn't make much sense. The counterfactual is that they'd be desperate to eat and take out a sky-high APR short-term loan. How is the new ability to take zero-interest loans "creating" the snowballing effect instead of reducing an already-existing one?

This is called "the Copenhagen interpretation of ethics", in which any interaction with a situation in an attempt to improve it somehow gets warped into shouldering responsibility for the preexisting situation in its entirety. In this case, you've somehow transfigured substantially reducing the cost of credit into "creating global poverty".

[RhysU]

The payday loan puts backpressure on using it because it is obvious that the person is paying to use it.

A zero interest loan does not communicate to the user that they are reducing their optionality until they are stuck.

[wutbrodo]

This feels like quite a reach.

Understanding that you've received X pesos now and will receive X less in two weeks is a lot simpler than implicitly calculating the NPV/default risk of high-interest loans, both from an intuitive and an explicit budgetary perspective.

Even if we (incorrectly imo) assume this dynamic plays out the way you say it does, it's quite a bold claim to say that this putative psychological effect comes close to outweighing a 3000% (or w/e) reduction in APR.

[antihero]

Nope. It's not a reach. My personal experience with payday loans which, due to having a regular income, was that I paid them back (with high interest but not the crazy amounts people talk about from missed payments) on time. It wasn't the interest that got me, it was the lack of money. That you then had to deal with for the next month, meaning you were more likely to get another loan.

[wutbrodo]

This thread is about the distinction between zero-interest loans and high-interest loans. The parent commenter claimed that people would be less likely to internalize the need to pay zero-interest loans because there's no interest. I said that the principal is a much more dominant concern. You are _agreeing with me_, but somehow couching your comment as disagreement?

> It wasn't the interest that got me, it was the lack of money.

This is precisely my point! The same thing applies for zero-interest loans.

Your comment says "it's not a reach [that the presence of interest is what makes people conscious of their payday loans]", and then says "the presence of interest is not what makes people conscious of their payday loans". Is this completely self-contradictory, or am I missing something?

[RhysU]

No one needs to compute NPV anything. It's not that complicated.

All you have to do to get backpressure is to see that spending X pesos now means that you have less than X pesos in two weeks. Because, fees and interest.

[wutbrodo]

You said that owing interest somehow implies "backpressure" in a way that zero interest loans don't. But the phenomenon you describe in this follow-up comment applies just as clearly to zero-interest loans: spending X pesos now means you forfeit X pesos later. The only difference is that, with non-zero-interest loans, you forfeit (X+I) pesos later, which requires an implicit calculation of whether time-shifting your spending is worth losing _I_ pesos.