...if you paid it off with an over-collateralized loan, then surely you must have already had enough money to pay it beforehand. Also may I ask what DeFi platform facilitates 0% loans? I thought they all had some low interest
Also, this was not my scenario but a common view: it can make sense to draw a loan so that you're not liquidating long-term holdings. Imagine I hold $100k in bitcoin and need to pay off $15k in student debt. If I sell my BTC, I'll incur capital gains tax and also have a smaller long-term holding. Alternatively, I can borrow $15k against the BTC, pay no tax, and keep my BTC position in full. There are various ways to then generate interest on the BTC and pay back the borrowed funds.
Some platforms offering 0% loans include Liquity and Alchemix.
In fact this “DeFi” thing should have a negative interest rate to compensate for the fact that this borrower will be paying them more and more each payment.