Rolling Overdraft


(Benjamin Ashbridge) #1

So i was thinking that if you where able to get an overdraft of say £500, because you needed a liltlle extra cash to pay unexpected bills e.g car repairs.
Every month your overdraft balance would reduce by £50 so:
Month 1
£500
Month 2
£450
Month 3
£400 so on so on ect.
This way you will be able to get out of your overdraft instead of living in it.
This would be aimed at people with not such a great credit rating.
thank you for taking time to read my idea.


(Marcel Ruhf) #2

Welcome to the community!
How would the amount reduce (I don’t seem to get the gist of what you mean)?


#3

The idea is the overdraft reduces by £50 each month to force you to pay it back. So jan your limit is £500. Feb your limit is £450. Personally not keen on this idea as it turns an overdraft more into a loan.

(Traditional overdraft usage being being as and when but rarely would you borrow the whole amount and stay in it permanently. Normally because your salary would at least temporarily pay it back).


(Peter Roberts) #4

I believe Monzo have plans on the pipeline to offer small personal loans. That to me sounds like it fits the scenario you’re mentioning much more than an overdraft?


(Benjamin Ashbridge) #5

Thank you for your thoughts on this. I completely understand your view on this. The reason i put this forward is i know so many people that live in there overdrafts. when they get paid it does clear the balance but inevetetably there back in it at the end of the month. Im not sure on intrest rates that would apply on a loan but im guessing they would be higher than an overdraft.
Again thank you


(Peter Roberts) #6

It would very likely be the opposite :smiley:


(Benjamin Ashbridge) #7

Thank you for your reply. forgive me if im wrong but an overdraft is a loan is it not. Just you dont need to pay anything back as long as you pay your intrest.
The idea wouldnt be in replacement of an overdraft facility it would just be an option for those who want it.


(Benjamin Ashbridge) #8

Thank you Peter.


(Leon) #9

You can reduce your overdraft yourself as it’s on a slider. I don’t understand why you would need help from Monzo with something it’s possible to do yourself


(Jamie 🏳️‍🌈) #10

Getting out of an overdraft is straightforward. Spend less. Or earn more. Your idea is innovative, but it doesn’t change this basic premise.


#11

To me an overdraft is a flexible credit product that allows you to borrow as and when needed within certain limits. Typically you will see higher rates of interest attached to this flexibility. Pay back when you wish, and only pay interest when you use it.

A loan is borrowing a fixed amount and paying a fixed amount over a specified term, usually with lower rates. Not in anyway flexible and there are often penalties for early repayment.

To me two completely different products.


#12

That is what an instalment loan is meant for, not OD. You’ll find yourself paying a lot more in interest/ fees if you use OD this way.

OD is meant for emergency/ short term borrowing where there’s a mismatch between income and expenditure, for example you have a direct debit due imminently but income is not arriving after a few days later.

If you require something long term, you should get something more appropriate eg personal loan or credit card rather than relying on OD. You’ll find that the cost of borrowing using those products will be way cheaper than OD!


(James Murray-Ferris) #13

Monzo have said they want to help stop the pattern to be fair in one of their open offices I watched once upon a time so they will likely have some sort of plan to deal with this as for some people they genuinely need help and monzo is about being better than a bank and actually helping people come out of debt


(Jack Donovan) #14

I think this is a good idea.

I used to live in my overdraft all the time. Now I have an IVA. This would have helped me, a lot.

It is also extremely difficult to reduce an overdraft at a legacy bank. Cancelling one is easy, reducing one is harder because you need an appointment to see somebody (at least you do at Halifax) and they don’t want to see you, because they can’t sell you anything :sunglasses:


(Leon) #15

Sure but that’s for people genuinely stuck in their overdraft and not for those who want a reducing overdraft, which as I said earlier it’s possible to do yourself.

Maybe Monzo will entertain this request who knows, it would be slightly weird if they did but it wouldn’t be the first weird decision they have made in my opinion.

(50p a day overdraft fee, from a bank that wants to help people stay out of debt is a oxymoron. When in almost all cases a typical APR charged by a bank you would be better off.)


#16

Yes. Totally agree, and goes against everything they said about overdrafts and borrowing in their earlier blogs.

Do I pay about £2.50 to Starling for the month or £15 to Monzo, it is a no brainer. Anyone trying to get out of debt or avoid debt is better off with the competitor. Using Monzo is like using a Payday loan, it is not the best solution.


(Leon) #17

If I could heart your comment a million times I would! Glad you are of old and saw the promises that were made only for them to do a 360 and come up with what we have now.

I guess the venture capitalists want a return on their investment, so Monzo has to show that the books will be balanced somehow but is screwing the end users the right way to go about it? We shall see…


(Jamie 🏳️‍🌈) #18

Stop looking at the overdraft fee structure in isolation.

Don’t forget :monzo: Monzo will introduce other innovative features which could work to stop you even going into an overdraft. For example, paying direct debits straight out of a Pot, so you’d allocate your ‘bills money’ into the Pot and would be free to spend (with the spending analysis and catagorisation that Monzo provides) the rest.

Without resurrecting the 50p overdraft rate discussion over and over again, what this fixed fee enables Monzo to do is, very far in advance, work out your projected bills and subscriptions, salary or wages pay-in, and rate of spend to accurately say “by the end of the month you will have used x days of overdraft which will cost you £y fee”. Monzo believe this certainty will help people budget better than a %APR which is entirely dependent on amount of overdraft used, something which, for a variety of reasons may be difficult to control. This approach will also feed into customers keeping out of their overdraft.

It is far cheaper to treat a nil balance as your ‘hard backstop’ rather than a £500 overdraft limit, in any situation, and Monzo helps in this regard by bouncing payments which would (in established banking) normally take you into Unarranged Borrowing, whilst providing the tools to separate essential money from spending money.


(Leon) #19

Lol but I have to look at the fee in isolation as it’s the only fee Monzo charge at the moment. (Oh wait the 3 per cent international fee but let’s not even go there.) In any case I can at least say we all voted on that one, who voted for 50p a day? That’s the highest APR I have seen and it’s what charged at -£20.01? Uh huh good stuff.

Your telling me that Monzo’s fee is helping people budget better? Ha ha ha ha ha do you really believe that? For the average person in the UK the average overdraft is £50.00 or less. (That was from 2015 so the figures could of changed.) What would cost more an typical APR or 50p a day fee saying I was in my overdraft for 7 days? Take your time I’ll be here when you work it out.

So your telling people that need the overdraft not to use it and instead for them to bounce their direct debits. Uh huh…Monzo might not change for bouncing direct debits but do that enough times and it will be you that’s paying the price. Remember you are dealing with vulnerable people so your advice there won’t help much.


(Jamie 🏳️‍🌈) #20

With every respect, this is not the place to keep arguing about the merits (or not) of the 50p fee.

If you can be bothered, I’ve already explained in the proper thread how I was very vocal against the fee structure at the beginning, before thinking about Tom’s argument for his decision to go fixed-fee. I now feel Monzo is providing an alternative to the charges-by-stealth of legacy banking. My argument runs over about 15 or so posts.