Just thought I would put this one out there as an option to repay a loan.
I know you can pay it off without being charged and make overpayments to reduce interest and the amount you pay each month.
It would be a good idea if there was another option to reduce the loan term by making an additional payment.
For example if I took a loan out for 60 months but I was to make a couple of my normal payments early to bring the term down to 50 months for example it would be good.
Or if I have a Morgage renewal coming up in 24 months but I would like to clear it earlier then it would be good to try and bring the term down so it would finish before renewing a Morgage.
Makes more sense in its current form, you can still pay down the loan before your mortgage renewal/application in the same way.
Not sure in your methodology, but seemingly making money work for everyone would be lower payments over the term, less interest, working towards more in your pocket from the get go.
The idea is to give more flexibility. In my case I just want to pay it down enough so that when I go for my mortgage renewal the loan will be gone. I could pay extra which will do the same but I would have to work it out.
Other providers such as Natwest give you an option to make a general over payment or reduce the term.
The comparison was fairly large. Most banks allow you you make an overpayment to reduce the term.
I am not clear on whether making an additional payment reduced the term of the loan with Monzo or it just lowers your payments for the duration of the loan.
When making extra payments back against a Monzo loan, the app will automatically recalculate your extra payment and spread the payment out over the term of the loan. This means the interest savings from your extra payment are reduced and there is no option to change this behaviour.
Is this behaviour compliant with financial regulations? For example, credit cards were forced to ensure payments would pay off the highest APR balance. The way Monzo opts to apply these extra payments is not in the consumerâs interest and that typically doesnât fare well with regulators
Correct. As you pay off more, the amount you owe is less and therefore the amount of recalculated interest added against what you owe is less (compared to the values before you paid off more)
Totally compliant. It is a loan, not a credit card. So there is no such thing as higher/lower APR charges while in debt - it is a linear, agreed plan.
The Monzo loan flexibility is pretty unique and totally in the consumerâs interest (I historically had a substantial Monzo loan and was able to pay it off very quickly compared to most other lenders because of said felxibility). As for the regulatory compliance guess - Iâm not qualified to say ârightâ or âwrongâ, but if I had to choose, Iâd be on the âMonzo-compliesâ side of the fence.
I canât vouch for the rationality of other forum members, but I had a Monzo loan and it cost me less overall when I overpaid. This is not disputable.
Itâs not unique a lot of loans offer this. Thereâs a screenshot above of a much more flexible loan that allows you to reduce the loan term which Monzo apparently doesnât and itâs perfectly correct to say this leads to more interest.
I think itâs pretty clear that Monzo is not as flexible as once thought from my point of view. Yes Monzo doesnât charge you early repayment fees which is pretty well documented. Given normally, around 58 days of interest is what it costs to settle a loan early with other providers, a single overpayment that reduces the loan term would save more than the early settlement amount.
I think if Monzo added this feature to itâs current overing it would be joining the ranks of the other providers, the only difference is that it would not be charging early repayment fees also which would make it unique.
Knowing now what I know, I would probably not take another Monzo loan as clearly other providers over a little more flexibility.
The clear thought process behind this was to overpay enough for a short period of time to ensure the loan closed before a mortgage renewal which would allow me to re allocate those funds to home improvements for a longer period knowing that everything would end around 6 months before the renewal and I would be in a far better off position. Not everyone will understand the logic but thatâs the point of flexibility to meet customers needs.
NB - The screenshot attached was from Natwest allowing you to reduce the term or the monthly payment. Lloyds only allow you to reduce the term and not the monthly payments.
Thanks for the suggestion, weâll look into it. I havenât actually heard it suggested before so Iâm keen to see if this is something lots of people want.
One of the things to consider is that thereâs a balance between offering lots of options for different ways to apply a payment and adding too much complexity. We see that already through some people choosing âpay extraâ instead of âpay earlyâ by mistake (or vice versa), which is difficult to unwind.
Iâm actually not aware of any other banks allowing âpay earlyâ, and I can tell you that already adds a fair amount of complexity to the system!
Thanks for your reposes. I think the demand will come from people knowing how much itâs going to save them in the long run. Pretty much what the screenshot shows really drives the point home and certainly prompted me to ask the question.
If you are seeing a lot of users who are selecting the wrong option then I would suggest you either itâs not clear enough or people are navigating without actually reading in full. I would suggest either changing the colour of the button to make it more visual or display a âare you sureâ warning message before payment.
Every highstreet bank has offered a pay early option for full balances for a long time at least the last 10 years I have had loans. Equally they have offered the option for ad-hoc payments too. Itâs certainly nothing new or special. The only thing that is different from Monzoâs part is not having an early repayment charge for the loan where as others charge up to 58 days interest.
Mostly I have paid ÂŁ300-500 in early repayment charges which in the grad scheme of things is nothing if you just want to get shot of the loan early.
In terms of complexity given interest is baked into the loans from a day rate point of view, no early repayment charges & no reduction in the direct debt amount I would suggest it would be pretty simple for when the option is selected to just remove the last payment on the list and only allow loan reduction amounts to be equal to the payment amounts already set out.
For example if my last payment is for ÂŁ543.43 on the 1st Januay 2026 when selecting that option the should be the minimum and maximent amount you can pay using that option. Equally if you want to pay more then customers should have to make a number of single payments.
Sorry, I should have been clearer! By âpay earlyâ, I mean paying your next scheduled repayment early (and the one after that etc.). I havenât seen that offered elsewhere and it does introduce some unusual complexities.
Yeah, make payment early is definitely unique to Monzo in my experience and is greatly appreciated as a feature, so thanks for dealing with the complexity there! (For anyone else reading this - if you get paid at a date in advance of your normal loan payment date, this feature will save you a couple of pounds over the course of your loan for sure!)
In support of the âlower the termâ option, Iâd like to say that overpaying month after month is really tedious! It takes effort every month to make the overpayment difference amount which is really out of character with everything else I do with Monzo - Monzo makes every other banking task really easy except this one!
. Absolutely you pay more interest.