Prepay discounts exploit our loss aversion

I have think about this since 2 days. You see the big discount if you pay 3 years in advance? It is very tempting, no? But I think it is a trick for our brain.

The providers know we fear to lose money every month. So they say "pay now and save 40%!" and we feel smart. But we lock our money for nothing. If the provider die in 1 year, we lose everything. And they know we will not change because we have pay already.

I have make a small calculation for my actual host. 3 years prepay = 180$. Monthly = 7$. The "saving" is 72$. But if I put 180$ in even a bad investment, I get more than 72$ in 3 years. And I keep liquidity.

What you think? It is possible to do that with all providers or I am too paranoid? Lol

My current is Contabo, they push hard the 3-year deal. Mdr

¡I was going to write a long thing but no! Jajaja

The real problem is very simple: is very easy to think you will need the server for 3 years. But you do not know. Your project dies, you want to change, the provider goes bad. And you have pay already.

I did this mistake with Hetzner. Now I have 18 months left and I want to leave. But my money is there. Is like a prison but for your wallet.

Prepay: $180 today
monthly: $7/month

opportunity cost at 5%: $180 * 1.157 = $208.26
actual monthly cost: $252
prepay "savings": $72

NPV of prepay: -$180
NPV of monthly: -$252
NPV of monthly + invest difference: -$180 + ($208-$180) = better liquidity

It actually works out that the discount beats most savings accounts, barely. But you lose optionality. For my home lab I do month-to-month on a NAT VPS from RackNerd — https://www.racknerd.com — can migrate in 10 minutes if they have issues.

Precisely. Additional considerations:

• Provider insolvency risk: prepaid funds become unsecured creditor claims
• TOS section 14.3 of most hosts permits termination without refund for "abuse" with broad definition
• Hardware refresh cycles: 3-year-old terms may not reflect current market prices

I do not prepay beyond 12 months. The graphs do not lie, but the marketing does.

RR

Hetzner even still alive? I heard they had network issues last month