Why pay more than minimum with 0% APR?

[Anonymous]

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@Anonymous wrote:

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I can only say that repeating something doesn't make it more true.   Your belief seems to be, in this context:

a) Paying exactly the minimum might be bad

b) Paying just a little over the minimum is probably better.

I just choose not to believe there is evidence for b.

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There's no "belief" here, it's really quite simple.  Paying exactly the minimum over a length of time is a sign of increased risk relative to someone that pays more than the minimum.  That's not arguable.  Paying over the minimum isn't "probably" better, it is better, as it translates to lesser risk.  Are we talking 10% less risk?  1%?  .00001%?  Who knows, but less risk is less risk.  If you want to argue that in your opinion it doesn't matter, that's fine, I take no issue with that.  No matter how you cut it though, someone that pays only the minimum payment month after month is seen as being a greater risk than someone that pays more than that. 

[frugal47374]

There is a qualitative difference between borrowing money at >0% and borrowing at 0%. In the first case, if you don't pay it off before interest is charged, you are demonstrating that you are unable to since it is costing you money.

In the second case, since it isn't costing you to continue the loan, paying it as slowly as possible shows to the lender that you understand the economic reality, not that you exhibit any risk. With the only reason to pay faster being fear, the lender has no reason to believe you aren't able to pay the loan faster.

If a company offers to lend me a certain amount of money for a certain time at 0% interest, I will accept their offer. They set the minimum amount they want me to repay them monthly and I will pay that minimum. If, later, the company is unhappy that I made the rational economic decision to use their 0% money for as long as possible, that is really their problem. If accepting their offer leads to adverse action against me, my reaction would be "Oh, whatever!". No one credit card that I have is important enough to me to not take maximum advantage of a 0% offer.

[Anonymous]

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@frugal47374 wrote:

In the second case, since it isn't costing you to continue the loan, paying it as slowly as possible shows to the lender that you understand the economic reality, not that you exhibit any risk.

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While I agree with your overall argument in terms of borrowing at 0% over > 0%, what you said above isn't completely true.  Any time a lender lends money, they take on risk.  It's a liability and an account receivable.  The longer that liability sits out there, the greater the chance of something happening that could prevent the terms of the loan being paid back.  The person paying the minimum each month could get hit by a bus, lose their job, incur massive medical bills, basically anything adverse to result in them failing to pay.  The longer the term, the greater the risk.  Therefore if one pays greater than the minimum, it shortens the term and lessens the risk.  Again, it's all arguable how much this actually matters and in many cases perhaps it doesn't much at all.