What if you could defer regular payments in emergencies?


#1

So I’ve had this idea. Suppose that you’re generally pretty good with money. You stick to your budget month to month and you’ve got an emergency fund built up. But your boiler packs up, or something else happens that burns through whatever emergency fund you’ve got. What then? You could take out a payday loan, but that’s got risks and ridiculous fees attached to it. If it were me I’m actively trying to avoid using credit. What do you do?

What if Monzo warned you that an upcoming regular payment exceeds your account balance? And then - subject to similar credit checks to a full overdraft facility etc - allows you to defer making that payment out of your balance until your next payday? At which point Monzo deducts the money from your balance.

Similar principle to an overdraft - probably similar architecture as well. There could be a limit on the number or value of payments allowed to be deferred, and automatic repayment at the top of the next budget cycle. Something like a cross between an overdraft and a payday loan. Monzo customers don’t go into debt because of an emergency, Monzo charges a minor fee for the service so makes some money, the regular payees get the money they’re due. Everybody wins!

Could this work, or am I just nuts? :laughing:


(Andy) #2

Interesting idea - I think this sort of thing would be covered by Monzos credit lending facilities - overdraft, spread the cost(not sure if this has been rolled in to loans) and loans


(Allie) #3

What’s the advantage over overdraft?


(Leon) #4

Probably nothing as you can bet the standard daily fee (50p a day) will be charged until the debt is paid off in full.

Not unless you can only use it one or twice a year at the most and they would stop the fees, in effect giving a fee free loan.


(Allie) #5

Or fees since Monzo doesn’t do interest.


(Leon) #6

Thanks I amended my post.


#7

It sounds like it’s fundamentally the same product but the “packaging” is different.

I think it’s really cool though, because it avoids the negative connotation of “negative balance” when you’re in overdraft.

To me, when I’m in overdraft it means I’m out of money, and that invokes some kind of stress in the back of my mind.

“Postponing” emergency bills using credit (be it in the form of loans or credit card) gives me a better sense that I’m in control I feel?


(Jamie 🏳️‍🌈) #8

What do you tell the company expecting payment? A lot of companies charge for making late payments. Unless you’re expecting Monzo to make the payment in the background, but just not alter your balance until payday – then that’s called an overdraft.

In your example you jump straight to payday loans as the alternative. That’s ridiculous. What about a credit card which charges 18–30% APR for the unexpected boiler repairs, and then slowly pay that down?

Whatever way you look at things, being provided with a line of credit is a service that any provider is going to charge you for. Charges should be fair, which is where I have a problem with Wonga–style borrowing, but lenders need to make money fairly.

For me, the danger of Monzo playing around with your balance, by not showing you what you really have to play with at any one time, is that you’re placed into a false sense of security. If Monzo pay your regular bill for you but don’t reflect that in the balance what’s to say you don’t keep on spending and then find you can’t afford the deduction at the next billing cycle?

People need to face debt head on, in my opinion, by either spending less or earning more. Deferring expected payments or not being shown a true balance just hides debt away where it’s easy to pretend you don’t have it. If your current ‘net worth’ is –£1000 because you’ve needed a new boiler, then have that reflected in Monzo, and deal with it properly.


#9

People think and manage finances differently I guess.

I think what the OP meant was to ring-fence the debt separately so it doesn’t feel like his current account is running negative.

How the debt will be paid off, could be structured (like an instalment loan) or flexible (like a credit card) etc, with the key emphasis of letting the borrower choose how to best manage the money themselves?

I know that if I’m forced into overdraft with negative balance in my current account, I’d feel really stressed. I’d rather have that debt ringfenced and pay it down regularly to help me get back on my feet.

You’re perhaps prefer to lump all your financial standings in 1 single number (the “net worth”). It’d be unfair to force everyone to manage money like you do I think?

I think the key emphasis should be to empower people to make their own financial choice?


(Leon) #10

Tom himself said he would think about working on some (unholy*) hybrid of credit card style replacement so that possibly could be it.

*My thoughts on the matter as it’s not going to be as good as a credit card so why bother?

Excuse my off topic rant.


(Leon) #11

I wish life was so simple for the majority of people, especially now we are in austerity.


(MikeF) #12

If that means showing it as a negative balance somewhere else in the app with a suitable total of a customer’s holdings at the bank then I can see how some may appreciate it. If it means hiding the debt somewhere so the customer doesn’t have to confront the reality of their situation then I’m dead against.

I’d need a little more detail on the presentation of this so as to understand what’s really being suggested.


(Ben) #13

Didn’t Monzo run a trial of short term loans for 3-12 months? Maybe not the same thing here as defer payment - but functionally equivalent?

Seemed to be popular but then it went quiet?

What I think Monzo could do really powerfully, alongside all these features that help with budgeting, (locked pots, pots with goals, round up, summary, etc), is to pair that with some super strong education.

Their straightforward tone of voice and style could do a lot about teaching people how to manage their finances. I know they have the odd blog post here and there - but tackle both ends - software that helps you save bits here and there, and be an educational platform - that could be super powerful.


#14

They’re already doing a lot of good in that area through the blog and website. @Feathers I’m not talking about hiding the debt, I agree with you that’s a disaster waiting to happen. The distinction from an overdraft - to which, I agree, this is very similar - is that it is limited by time and amount. It would be for people who don’t ordinarily need an overdraft, but something has happened that they can’t roll with until the next payday. Hence the comparison with payday loans, although not nearly so regressive.