By Oliver Smith on Thursday 15 August 2019
With APRs of between 3.7% and 20.4% on loans up to £15,000.
Digital bank Monzo took the wraps off its short-term loans this morning, an offering that it’s been beta-testing for the last few months.
Monzo’s loans are split between £200-£7,500 loans with an APR representative of 20.4%, and £7,500-£15,000 loans with an APR of 3.7%, both available up to 60 months.
While these rates are hardly the cheapest, Monzo said the exact rate would be confirmed during the application, with the lowest rate on offer for sub-£7,500 loans at just 6%.
A spokesperson for the company told AltFi that the offering has been developed entirely in-house, with TransUnion being the only external partner to conduct a soft credit check.
“The unfortunate reality is that many lending products on the market catch customers out with hidden fees and jargon and they don’t offer much flexibility. That’s why we’ve worked hard to build a fair and transparent loan offering that gives customers control - this includes letting them decide when they make repayments and not penalising them for paying off their loan early," said CEO Tom Blomfield.
Lending has been slow progress for the digital bank so far, Monzo’s annual report revealed just £19.2m of lending in 2019, mostly in overdrafts but also from a small number of its beta-testing loans.
Worryingly, the bank also revealed it’s expecting to lose £3.1m from these initial loans, it’s unclear whether the bank has made to tighten its credit control.
It should also be noted that Monzo’s loans, similar to its savings products, aren’t the cheapest in the industry.
For a small sub-£7,500 loan, places like Admiral, Santander, The AA all boast APRs of between 8.2% and 13.9% depending on the customer.
For larger loans of over £7,500 similarly many high street banks offer rates better than 3.7%, including M&S Bank along with alternative lenders like Zopa which offers larger loans for 2.9%.
Still, Monzo’s loans are a start as the bank grows in confidence with credit and another arrow in the quiver for Monzo’s banking proposition.
