I noticed some behaviour change in the app about 6 months ago, and the UI change for this recently which further cements my assumption that Monzo is now charging a fee on early repayments of loans, even though it is heavily marketed they do not.
Monzo shows the “balance + interest” amount on the home screen, and shows the “balance only” amount under the “Pay extra → Pay in full” screen.
You can deduce how much interest is remaining for your loan from the difference between these two figures.
Monzo presents two ways of partially repaying a loan early, one is “Pay extra” and one is “Pay early”
If you hit “Pay extra”, you get a fairly new UI that shows what your new monthly payment amount would be, and how much it would be reduced by
Monzo’s monthly payments have all future interest baked in. So paying off early reduces those monthly payments, as there will be less interest due.
But when you go to make a monthly payment early using the “Pay early” option (in my case, 5 months early), the monthly amount is not reduced at all.
Back to comparing those two figures like I mentioned earlier. When you pay off the monthly payment early, the difference between the balance with interest, and the balance without interest only changes by the amount you paid back - meaning there was no reduction in interest.
The only plausible explanation for that, is Monzo charges you a fee equivalent to the interest that would have been due if you had not paid back early. So, in my case, they would charge me 5 months interest on £450.66 as soon as I pay back.
This obviously contradicts all of their marketing, and language in app, so I’d like to think this is not the case.
And I know this behaviour has changed. As you can see my next payment date is June. I’ve repaid early a few times now. And each time I’ve “Paid early” it’s reduced the monthly amount due each subsequent time I’ve paid back early (and reduced the total balance by the payment amount plus extra, which is reduced interest).
So what gives? Is this a bug? Or is Monzo now charging interest on early repayments, contradicting their claim they are not?