Loan refinancing

At the moment, as far as I know, you can’t apply for another loan with monzo when you already have one. You have to pay the full loan down before applying for a new one.

Other providers (nationwide and zopa in my personal experience) offer the option to take a new loan that pays off the old loan and provides extra borrowing (easy online process). This can sometimes be at an improved rate (for whatever reason).

Monzo should implement this:

  1. to be at least at parity with what else is in the market
  2. to live up to the ethical lending piece and make it easier for customers to refinance to perhaps a lower rate
  3. make more money - right now i have a few grand left to pay back. If i saw a new lower rate to take out 10k then i’d prob take it and you’d have me in a new product that would create more interest income than me simply finishing off my 3k loan period
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Not sure if still the case, but credit unions were like that in the nineties.

How are they being unethical at the moment? I don’t understand this point

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Monzo have said it’s on their list to allow you to take out more than one loan.

That being said I’m not sure how banks take into consideration that you want to take out a loan to repay other debts from other providers because presumably they’d have to do affordability checks to see if you can afford all of them on the basis that you don’t do this. Or they could land themselves in hot water for not not being ethical with their lending.

This is why I always thought that debt management type of firms existed. To manage all of this and contractually oblige you to repay old debts before they give you the new consolidation loan.

Not saying they are unethical right now. What I try to get across is more that it aligns to monzo’s brand to 1) allow the customer flexibility, 2) transparent and 3) my original point - get the best deal for your money

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I’ve not used a debt management firm before but have refinanced a number of times.

So if i see a better deal on ratesetter i can get a loan and mark down i’m using it to pay off debt. Then use that money to pay off monzo or zopa or credit cards, for example. Ratesetter (and others) never check what i actually do with the money. Similarly if you say you are buying a car with the loan or home improvements, no one checks.

From the above i’m sure it screams out that there is danger in this because someone can find themselves in financial struggle by playing the system - its very possible to do so. So monzo should be wary of this but as far as its a monzo product refinancing for a monzo product I dont see an issue there. Nationwide make it really easy to get another product on top of the on you have and choose whether it pays the old one off or not.

Good to hear its on the roadmap. Cheers

I wouldn’t technically say it’s on the roadmap, they just acknowledged that they’d like to do it eventually without giving any indication of priority or even when. This is the usual type of answer they give.

It also wasn’t a yes to a consolidation loan. Just the option to have more than one loan.

From what I gather Monzo don’t have the best rates either because they’re just a small fish, so it’s unlikely all the things you’re asking for will come (or are even possible) anytime soon.

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I realise this is good for Monzo, but do you really want/need encouragement to borrow another £7k that you don’t really seem to need?

I don’t think this is what debt management companies are for!

The suggestion is the ability to turn, say, a 3 month loan into larger one year loan etc. it’s just a matter of flexibility and it’s a fair suggestion. There’s many reasons you might want to do that, it’s not necessarily about being in financial difficulty.

I’m not sure where the OP is going in terms of ‘ethics’ but their other points about it being flexible for customers and good for Monzo are valid ones.

It’s probably a way down Monzo’s list though

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I don’t know, that’s why I was asking :sweat_smile:

Turning a Monzo loan into a bigger Monzo loan, sure. But they’re talking about taking out a Monzo loan to pay of loans and cards from another bank.

That’s the bit where I said they will access affordability on you taking out a loan in addition to the ones you have. They won’t account for the fact you theoretically won’t have any other loans to pay off as a result and they haven’t said it’s something they’d like to do (to my knowledge) unlike the first scenario.

That’s what I was explaining, or trying to :sweat_smile:

I think this is more the realm of the credit agencies. They have the cross bank view and adjust your credit score based on that cross bank view

Well, my “need” is down to me and situation.

Not all debt is equal in nature, rate, terms, or time period. In addition people’s situation changes over time. So a decision i made over a year ago around my finances would be good to be able to alter that on an ongoing basis. If one thinks of their personal finances like that of a business then it is normal for a business to have an overdraft, loans and on-credit arrangements. Depending on cash flow into the business, strategic objectives, or change in market conditions that impact the financing mix over time.

Sometimes people rack up credit card debt during the interest free period and then cant afford to pay it off so pay 25% APR. If i have a monzo loan at 8% then it would be the smart thing to do to extend that monzo loan at 8% to pay off the 25% APR credit card.

We shouldn’t see debt as necessarily scary and bad. With inflation high it makes sense to borrow money now. 10k today is worth more than 10k in the future. Inflation erodes debt and erodes savings. If i can increase the value of my property, for example, by putting in a new kitchen (property is an inflation hedge) then that’s smart rather than having savings eroded by inflation.

The above is a not as coherent as I’d like but I hope demonstrates a bit of the point around that circumstances change, refinancing can be smart and having the flexibility to do so at monzo would be great - just like i do with other providers.

If i have a monzo loan at 8% that was originally 15k and now owe 3k then i check the latest offer (and for whatever reason (perhaps better credit score or cheaper BoE base rate)) I am now offered 15k at 5% then I might take that. 1. because the rate is better than the 3k loan remaining. 2. because i know i can pay back 15 loan over time, just like i did that first time. Monzo also know i can pay this back as they see my history from the first loan. I may have a particular need at the time - it doesnt really matter what that need is. Monzo (and all businesses) are in the game of meeting customer need. So it would be good to see more options around loans as more options meet more needs.

Btw, to be less theoretical, the actual reason this comes up is i’m planning on getting married and having a kid. I only have 1 loan - with monzo. I have everything in monzo and want to keep it that way because i love the product. I want to refinance my 3k for more with monzo. But i can’t. So i’m going to end up going and doing a market comparison. I suspect the market comparison will give me a slightly better rate than monzo (based on previous experience). So i’m gunna borrow 3k more than i need to pay off the monzo loan cos it makes sense to have one loan rather than two, and to use the slightly lower rate to pay off the slightly higher rate.

Monzo have lost a customer. They’ve also lost the opportunity to offer their customers a better rate than what they are (my ethical point, but the word ethical is the wrong one).

A natural consequence of more than one loan is that you could use it to pay off the other. No fees or barriers to paying loans down early or completely with monzo.

I think we’re misunderstanding each other.

To get back on track, I’d personally start looking around at other providers so that you can start securing things for the big day.

I hope it all goes well!

Okay, interesting that’s not my understanding of the OP! I thought they were talking about the option to turn a smaller Monzo loan into a bigger one? That’s how it read to me.

Maybe I am! Yeh, I will do. Hopefully I can persuade the mrs to go small on everything so we don’t need any financing!

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It would be highly unlikely that in the event you could grab another Monzo loan that the APR would be better than you could get elsewhere. They tend to work slightly differently on APR then what other providers end up offering you.

Your 10k is costing you a heck of a lot more today, because you’re borrowing it. If your rate is greater than inflation, your spending power is less than it would be in a year after inflation, surely, because you’re paying the bank to be able to spend it.

If you’re just looking at the headline interest rate, and not taking into account the extended term over which you’re borrowing, you may find you’re paying more over the lifetime of the loan, even with a lower rate. Slightly less each month but with many more months = more money than just repaying the loan. That’s why borrowing to pay off borrowing rarely makes sense.

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Yeh, fair. I understand this - I work in FS.

But as you say, there is more than the headline rate of inflation. Timber has increased 45% in the last 6 months. Borrowing and buying timber for a project in a years time might make sense for example as it shows no signs of slowing down.

In my previous posts I was trying to demonstrate debt and refinancing can be the smart thing to do via some less common ways of thinking / examples.

Either way, be nice for each person to have the flexibility to choose how to manage their finances via option to take out a new loan when already in a loan with monzo.

As an aside personally wouldn’t bet against the headline rate of inflation going above the rate monzo offer me.

The inflation measures are played about with anyway. In the US the Fed is very conveniently selecting its basket of goods to dampen the headline at the moment. High inflation erodes all the borrowing we’ve taken out to fund the pandemic